Question

Company analysis.  Given the financial data in the popup​ window, LOADING...​, for Disney​ (DIS) and​ McDonald's (MCD), compare these two companies using the following financial​ ratios: debt​ ratio, current​ ratio, total asset​ turnover, financial​ leverage, profit​ margin, and return on equity. Which company would you invest​ in, either as a bondholder or as a​ stockholder?

	Disney		​McDonald's
Sales	​$48,851		​$28,149
EBIT	​ $12,119		​$8,104
Net Income	​ $7,462		​$5,414
Current Assets	​$15,129		​$4,919
Total Assets	​$84,112		​$36,557
Current Liabilities	​$13,164		​$3,038
Total Liabilities	​$39,111		​$20,605
Equity	​$44,871		​$15,958

Answer 1

Debt ratio: Measures the companies extent of debt.

Total liabilities / Total Assets

Disney = 39111/84112 = 46.5%

McDonald's = 20605/36557 = 56.3%

McDonald's is much more financed through debt. A low debt ratio shows a conservative financing strategy. Higher debt ratio can also indicate higher risk to lenders.

Current Ratio : One of the liquidity ratios to show how are current assets and current liabilities stacked up against each other. The higher the ratio, the better the liquidity of the company.

Current Assets / Current Liabilities

Disney = 15129/13164 = 1.15

McDonald's = 4919/3038 = 1.62

McDonald's is better comparatively to Disney in terms of liquidity. The composition of current assets also matters though.

Total Assets Turnover : The efficiency of the company can be ascertained by the number of times it turns over its assets.

Total Sales/ Total Assets

Disney = 48851/84112 = 0.58

McDonald's = 28149/36557 = 0.77

McDonald's is more efficient in using its assets comparatively. Hence better for both debt and equity investors.

Financial Leverage : Measure the overall debt load in a company. If a company is highly levered, the credit lenders fund majority of the company's assets. And vice versa for equity investors.

Total Assets / Total Equity

Disney = 84112/44871 = 1.87

McDonald's = 36557/15958 = 2.29

The higher the ratio, the more equity funding the assets. Hence McDonald's is being funded more by the equity investors than credit lenders compared to Disney.

Profit Margin: Profitability ratio. The higher the better

Profit/ Sales

Disney = 7462/48851 = 15.2%

McDonald's = 5414/28149 = 19.2%

Clearly, McDonald's is more profitable compared to Disney. We also need to see the median industry average profitability ratios to get a better view.

Return on Equity : Again a profitability ratio measuring returns for equity investors. The higher the better.

Net income / Shareholder's equity

Disney = 7462/44871 = 16.6%

McDonald's = 5414/15958 = 33.9%

McDonald's is the clear winner in terms returns to the equity investors.

I would invest in McDonald's as an equity investor. And Disney as a credit lender.