Ratio Analysis and Statement of Cash Flow: Wendy's vs. McDonald's.

Essay by DANIMAL69University, Bachelor'sA, October 2005

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Cash flow is the lifeblood of all businesses, regardless of size; if a company has no cash flow it would have to cease doing business. For the McDonald's Corporation, cash flow from operating during the time period ending December 2004 was $3,903,600,000. The balance sheet of McDonald's also reveals that the cash flow generated by investing was $1,383,100,000 through December 31, 2004, according to annual data, and cash flow from financial activities was $1,633,500,000.

McDonald's major competitor, Wendy's International Inc. generated $130,217,000 from investing, according to the annual data collected through January 2005. This number is derived from $29,650,000 in direct investments and $125,301,000 in financing activities with cash flow from operations during the same time period, (www.finance.yahoo.com).

The influencing factors that have the most impact upon each of these fast-food companies' bottom line have been the growth of competitors and their own expanding product lines. "Net income for McDonald's fell to $530.4

million, or 42 cents a share, from $590.7 million, or 47 cents a share. The latest report includes an incremental tax expense of $112 million, or 9 cents a share, resulting from a move to repatriate approximately 3.2 billion in foreign earnings under the Homeland Investment Act," (Gray, 2005). The revenue of the chains 13,000 plus U. S. restaurants rose 7% for the second quarter of 2005 partly driven by new products, such as fruit-and-walnut salads and the introduction of deli-type sandwiches.

In the last few years, McDonald's has focused on the internal improvements of their existing restaurants rather than on expansion. McDonald's has also stated that rising beef costs are having an impact on their bottom line. "During this year's first quarter the cost of beef rose 6% and continued to rise in the second-quarter with an additional 10% increase. Chief Financial Officer, Matthew H.