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Computing Values and Assessing Financial Statements

McDonalds 2004 financial statements contain the following selected data (in millions)
Current Assets $2,857.8
Total Assets 27,837.5
Current Liabilities 3,520.5
Total Liabilities 13,636
Interest exp. $358.4
Income taxes 923.9
Net income 2,278.5

a) Compute the following values and provide a brief interpretation of each:
1) Working Capital
2) Current Ratio
3) Debt to total assets ratio
4) Times interest earned ratio.

b) The notes McDonalds financial statements show that subsequent to 2004 the company will have future minimum lease payments under operating leases of $11,442.6 million. If these assets have been purchased with debt, assets and liabilities would rise by approximately $10,500 million. Recompute the debt to total assets ratio after adjusting for this. Discuss your results.

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Financial statements are useful tools for evaluating both profitability and liquidity. Used separately, or in combination, the income statement and balance sheet help interested parties to measure a company's current financial performance, and to forecast its profit and cash flow potential. Many different users have need for accounting information in order to make important decisions. These users include investors, creditors, management, governmental agencies, labor unions, and others. Because the primary role of accounting information is to provide useful information for decision-making purposes, it is sometimes referred to as a means to an end, with the end being the decision that is helped by the availability of accounting information. Investors and other stakeholders in the firm need regular financial information to help them monitor the firm's progress. Balance sheet, tells about the assets and liabilities of business. It portrays the picture of the organization on a particular date. Income statement discloses the performance of the organization. It tells about the profitability of the ...

Solution Summary

This solution involves computations for working capital, current ratio, debt to total assets ratio, and times interest earned ratio.