Suppose McDonalds 2014 financial statements contain the following selected data (in millions). Current assets $ 3,416.3 Interest

Question:

Suppose McDonald’s 2014 financial statements contain the following selected data (in millions).

Current assets $ 3,416.3 Interest expense $ 473.2 Total assets 30,224.9 Income taxes 1,936.0 Current liabilities 2,988.7 Net income 4,551.0 Total liabilities 16,191.0 Instructions

(a) Compute the following values and provide a brief interpretation of each.

(1) Working capital. (3) Debt to assets ratio.

(2) Current ratio. (4) Times interest earned.

(b) Suppose the notes to McDonald’s financial statements show that subsequent to 2014 the company will have future minimum lease payments under operating leases of

$10,717.5 million. If these assets had been purchased with debt, assets and liabilities would rise by approximately $8,800 million. Recompute the debt to assets ratio after adjusting for this. Discuss your result.

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