Question

In: Accounting

The balance sheet and income statement for the McDonald's are as follows. McDonald's Corporation 2016 Income...

The balance sheet and income statement for the McDonald's are as follows.

McDonald's Corporation 2016 Income Statement ($ Millions)

Sales

$11,508

Cost of goods sold

  6,537

Gross profits

$ 4,971

Marketing expenses and general

    and administrative expenses

$ 1,832

Depreciation expense

   345

Total operating expenses

$ 2,177

Operating profits

$ 2,794

Interest expenses

     387

Earnings before taxes

$ 2,407

Income taxes

     765

Net income before preferred stock dividends

$ 1,642

Preferred stock dividends

       25

Net income available to common stockholders

$ 1,617

McDonald's Corporation December 31, 2016 Balance Sheet ($ Millions) Assets

Cash

$ 341

Accounts receivables

484

Inventories

71

Prepaid expenses

     247

   Total current assets

$ 1,143

Gross fixed assets

$20,088

Accumulated depreciation

   5,127

   Net fixed assets

$14,961

Investments

702

Other assets

   1,436

   Total assets

$18,242

Liabilities and Equity

Liabilities (debt):

   Short-term notes payable

$ 1,629

   Accounts payable

651

   Taxes payable

53

   Accrued expenses

     652

       Total current liabilities

$ 2,985

   Long-term debt

  6,325

       Total liabilities

$ 9,310

Equity:

   Preferred stock

$ 80

   Common stock:

   Par value and paid in capital

$ 708

   Retained earnings

11,927

   Treasury stock

(3,783)

   Total common equity

$ 8,852

       Total equity

$ 8,932

       Total liabilities (debt) and equity

$18,242

  1. Calculate the following ratios:

RATIO

INDUSTRY NORM

Current ratio

0.70

Inventory turnover

90

Average collection period

6.5 days

Debt ratio

50%

Total asset turnover

1.5

Fixed asset turnover

2

Operating profit margin

21%

Return on common equity

15%

2. Calculate the future sum of $5,000 given that it will be held in the bank 5 years at an annual interest rate of 6 percent.

3.

  1. Knutson Products, Inc., is involved in the production of airplane parts and has the following inventory, carrying, and storage costs:
    • Orders must be placed in round lots of 250,000 units.
    • The carrying cost for 1 unit of inventory is $ 10
    • The ordering cost is $100 per order.
      1. Determine the optimal EOQ level.
      2. Determine the average inventory when the safety stock is 2000 units.

Solutions

Expert Solution

Solutions:

Current Ratio
Formula Current Assets / Current Liabilities
2016
Current Assets 1143
Current Liabilities 2985
Current Ratio 0.38
Inventory Turnover
Formula Cost of goods sold / Average Inventory
2016
Inventory 71
Cost of goods sold 6537
Inventory Turnover 92.07
Receivable Turnover
Turnover Ratio Sales / Average accounts receivables
2016
Accounts receivables 484
Credit Sales 11508
AR Turnover ratio 23.78
Average Collection period
Formula 365 / Turnover ratio
2016
AR Turnover ratio 23.78
Average collection period 15.35
Total Asset Turnover
Formula Total Sales / Average Total Asset
2016
Total Assets 18242
Sales 11508
Total Asset Turnover 0.63
Fixed Asset Turnover
Formula Total Sales / Average Total Asset
2016
Fixed Assets Assets 14961
Sales 11508
Fixed Asset Turnover 0.77
Operating Profit Margin
Formula Operating Profit / Sales
2016
Operating Profit 2794
Sales 11508
Gross Profit Margin 24.28%
Return on common stockholders equity
Formula Net Income available to equity shareholders / Average Common Equity
2019
Common Equity 8852
Net Income available to common equity holders 1617
Return on common stockholders equity 18.27%

PS: Kindly post multiple questions individually. The first one is answered for you. Use the comment box for clarifications, if any.


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