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Acc 280 Financial Analysis Final

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Acc 280 Financial Analysis Final
Financial Analysis
XACC/280
University of Phoenix
Financial Analysis
The financial health of an organization is an essential piece of
information used by investors to assess how well the organization is
performing and to make informed decisions about whether to purchase
stock or remain invested. The annual report of a publicly traded
company is available for anyone to review; it discloses the financial
health of the company to potential or current investors. Investors use the
annual report to determine what the company plans to do in the future,
as well as compare the financial information from the previous year(s).
Annual reports show if the company's sales, assets, and liabilities have
increased, decreased, or stayed the same. The following is an analysis
of McDonald’s Corporation 2010 Annual Financial Report, and will
compare the financial health of the company, explain why it is worth
investing, and provide analyses to support the investment decision.
McDonald’s was ranked 111 on Fortune 500’s annual ranking of
America’s largest corporations in 2010 (Fortune 500, 2011). The
restaurant is one of the largest fast-food chains in the world and
experienced many financial highs in 2010. Revenues increased 6% and
the guest count rose by 4.9%, in addition to the Company returning $5.1
billion to shareholders (McDonald’s Corporation, 2011, p.11). These are
just glimpses of what the organization accomplished over the course of a
year. In order to provide more information on McDonald’s financial health
analyses were performed and the results were evaluated. There are
several tools used to analyze financial statements: vertical analysis,
horizontal analysis, and ratio analysis. These analyses help evaluate an
organization’s profitability, solvency, and liquidity (Weygandt, Kimmel, &
Kieso, 2008).
According to Businessdictionary.com (2012), a vertical analysis shows
the relationship between items on a financial statement by expressing
those amounts as percentages. A vertical analysis performed on

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McDonald’s Consolidated Statement of Income showed that 67.4% of
sales were generated by Company-operated restaurants and 32.6% of
sales from franchised restaurants, an increase of .6% from 2009
(McDonald’s Corporation, 2011). The analysis also showed that a
majority of the revenue earned was generated through the restaurants
owned by the Company, a trend that continued from the previous years;
franchised restaurants had a smaller percentage of the total revenue.
The vertical analysis of McDonald’s Operating Cost and Expenses
showed that 2009 and 2010 were similar as far as percentage of total
revenue versus expense. The operating costs and expense decreased
by 1% in 2010, which indicates that McDonald’s spent less in operating
costs and revenue had increased from the year before. Twenty-two
percent of McDonald’s operating costs were in food and paper materials,
the largest portion of expense. Payroll and employee benefits were
similar to 2009, maintaining 17% of operating cost, a .4% decrease
(McDonald’s Corporation, 2011).
According to Weygandt, Kimmel, & Kieso (2008),“horizontal analysis
evaluates a series of financial statement data over a period of time [and]
its purpose is to determine the increase or decrease that has taken place
[over that specific period of time]” (Ch.15, p.699). A horizontal analysis
performed on McDonald’s Consolidated Balance Sheet revealed that the
Company’s total assets increased 27.9% from 2009, a gain of almost a
million dollars. The highest increase in assets for 2010 was 52.6% in
prepaid expenses (McDonald’s Corporation, 2008). This increased by
over half from the previous year. One important revelation the horizontal
analysis showed was there were no decreases in assets in 2010, which
indicates the company continues to grow. The horizontal analysis of the
2010 current liabilities showed a decrease in total liabilities of 2.1% from
2009. Although there was almost a 50% increase in accounts payable
from the previous year, the most significant decrease was in long-term
debt by -54%. McDonald’s Corporation paid off almost half of the
maturities of long-term debt, which indicates finances improved from the
previous year (McDonald’s Corporation, 2011).
Ratio analysis are performed to show the mathematical relationship
between specific items from the financial statement’s data (Weygandt,
Kimmel, & Kieso, 2008). There are three forms of ratio analysis: liquidity,
profitability, and solvency ratios. The liquidity ratio measures the short-
term ability of a company to pay off debts and still have cash leftover
(Weygandt, Kimmel & Kieso, 2008). The current ratio measures liquidity

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