Question

The following information is provided for Starbucks (SBUX) and McDonalds (MCD) for the fiscal year (2017). All amounts are in millions of USD.

	SBUX	MCD
Net Sales	22,386.60	24,621.90
Cost of Goods Sold	9,038.20	11,698.80
Operating Expenses	9,605.30	5,178.60
Cash & Cash Equivalents	2,462.30	2,671.20
Short-term Investments	228.60	-
Accounts Receivable	870.40	1,569.00
Inventory	1,364.00	54.20
Other Current Assets	358.10	495.90
Total Current Assets	5,283.40	4,790.30
Average Plant Assets	4,726.65	22,187.60
Average Total Assets	14,339.05	31,791.75
Total Current Liabilities	4,220.70	3,468.30
Total Liabilities	8,908.60	33,228.20

You are further given the following formulas:

Gross Margin = Gross Profit / Net Sales

Operating Margin = Operating Income / Net Sales

Return on Assets = Operating Margin x Total Asset Turnover

Current Ratio = Total Current Assets / Total Current Liabilities

Acid-Test Ratio = (Cash & Cash Equivalents + Short-term Investments + Accounts Receivable ) / Total Current Liabilities

Days' Sales Uncollected = Accounts Receivable / Net Sales x 365 days

Days' Sales in Inventory = Inventory / Cost of Goods sold x 365 days

Total Asset Turnover = Net Sales / Average Total Assets

Plant Asset Turnover = Net Sales / Average Plant Assets

REQUIRED: Answer the following Questions

1. Complete the table below to calculate the given ratios (Note: profitability ratios (the first three) need to be expressed as a percentage). All calculations to two decimal place

SBUXMCDPROFITABILITYGross Margin59.63%52.49%Operating Margin16.72% 31.45%Return on Assets26.08% 24.36%LIQUIDITYCurrent Ratio1.25 1.38Acid-Test Ratio0.84 1.22EFFICIENCYDays' Sales Uncollected14.19 23.26Days' Inventory Outstanding55.0815.47Total Asset Turnover1.56 0.77Plant Assets Turnover4.74 1.11

2. Answer the following questions by selecting the correct answer

(a) Which company is more effective in generating a return on its sales?

(Click to select)  MCD  SBUX  Neither

(b) What are some of the reasons that the company you chose above is  more effective in generating a return on its sales?

On average, SBUX has more customers than MCDunchecked

On average, SBUX has a higher markup on its cost of products than MCDchecked

On average, MCD has a higher markup on its cost of products than SBUXunchecked

On average, MCD has more customers than SBUXunchecked

(c) Which company is more effective in generating sales using its plant assets?

(Click to select)  SBUX  MCD

(d) Which company is more effective in generating sales using its total assets?

(Click to select)  MCD  SBUX

(e) What are some explanations for your answers in (c) and (d) above?

On average, SBUX has higher markup on its productschecked

SBUX leases more square footage than it ownsunanswered

On average, MCD has higher markup on its productsunanswered

MCD owns more square footage than it leasesunanswered

(f) Starbucks (SBUX) main coffee supplier requires a 60-day lead time when ordering inventory. Assume that today is January 10, 2018, using SBUX's Days' Sales in Inventory, when is the latest date that SBUX should order coffee? Explain your computations Please be detailed in your answer and use proper grammar

(g) On average. which company has a better accounts receivable management? Why? Please be detailed in your answer and use proper grammar

(h) Which company has a higher ability to pay off its short-term obligations as they fall due?

(Click to select)  MCD  SBUX

(i) What are some ways MCD can improve its receivables collection?

Offer cash discounts to accelerate its receivablesunanswered

Ask SBUX to collect its receivablesunanswered

Factor its receivablesunanswered

Negotiate a shorter waiting period from credit card companies using delayed paymentunanswered

Negotitate a longer waiting period from credit card companies using delayed paymentunanswered

Eliminate cash discounts for its credit customersunanswered

Answer 1