The current assignment evaluates the liquidity, solvency, and profitability of two US companies McDonald’s and Yum! Brands, Inc. Both companies are highly recognized for their quality of fast food and brand reputation in the global market.
Liquidity Analysis
Table 1. Liquidity Position of McDonald’s, Yum! Brands, Inc., and Industry Average.
The liquidity position of McDonald’s was strong as compared to Yum! Brands, Inc. indicated by the values of current and quick ratios in table 1. McDonald’s had a variety of current assets, including inventories, that enabled it to remain financially stable. The main reason for the stability of its liquidity was its strong brand reputation in the global market created through effective marketing and sales strategies (McDonald’s). However, the position of Yum! Brands, Inc. was also strong in 2017, as highlighted by the values of both liquidity ratios.
Solvency Position
Table 2. The Solvency Position of McDonald’s, Yum! Brands, Inc., and Industry Average.
The solvency position of McDonald’s was negative in 2017, as given in table 2, due to the negative value of its shareholders’ equity. The main reason for the decline in its equity value was the decrease in its stock price followed by unfavorable economic conditions in different countries. A similar trend was found in the ratio values of Yum! Brands, Inc., but its reason was different. Yum! Brands, Inc. accumulated a deficit for the last three to five years that resulted in the negative value of its shareholders’ equity in 2017 (Yum! Brands). However, the industry average was higher, which indicated the solvency position of McDonald’s and Yum! Brands, Inc. was weak in 2017 as compared to other companies.
Profitability Position
Table 3. The Profitability Position of McDonald’s, Yum! Brands, Inc., and Industry Average.
The profitability position of McDonald’s was weak as compared to Yum! Brands, Inc. in 2017, as shown in table 3. The values of the net profit margin of both companies were the same, but there was a significant difference in the values of the gross profit margin. The situation indicated that Yum! Brands, Inc. was inefficient in controlling its expenses in 2017, which wiped off the positive effects of cost controls. The situation indicated that the management did not pay attention to controlling and managing its revenue expenses (Wilson 124). On the other hand, both companies were more efficient in generating profits than their peer companies, as indicated by the industry average.
The overall analysis of both companies and their comparison with industry averages showed that McDonald’s and Yum! Brands, Inc. improved its profitability and liquidity in 2017. However, they need to control and manage their equity position to manage their operations efficiently.
Works Cited
McDonald’s.
“McDonald’s Annual Report 2017.”McDonald’s, Web.
Wilson, Philip. Almanac of Business & Industrial Financial Ratios. CCH Incorporated, 2015.
Yum! Brands. “Yum! Annual Report 2017.” Yum! Brands, Web.