Question

Please answer the following about Mcdonald's and Wendys

1. Debt management
   • Debt ratio
   • Times interest earned
   • Comments on debt management
2. Profitability
   • Net profit margin
   • Return on Assets (ROA)
   • Return on Equity (ROE)
   • Extended Du Pont equation
   • Comments on profitability to include your comments on the sources of ROE revealed by the Du Pont equation

Answer 1

Soln

under debt management

Debt ratio = Total debt / Total liability

Total Assets

Hence , the higher the debt ratio the lower will be the risk associated.

Times interest earned ratio = Earnings before interest and taxes

Total interest on debt

It is calculated to check the company's ability to pay back the debts.

This ratio is calculated to ensure that after paying back the debts whethere there are sufficient cash remaining to invest in the business.

Comments on debt management:

Debt should be managed properly because after paying back the debts there needs to be sufficient cash to run and invest the business.

Profitability:

Net profit margin = Net profit *100

Net sales

If the company is sufficient enough to convert the sales into profit

HIgher the ratio, more favourable the option is.

Return on Assets = Net Income   

Average total assets

Return on Equity = Net income   

Shareholder's Equity

Extended Du Pont equation

ROE = Net income

Average Shareholder's equity

Comments on profitability :

to achieve the high ROE , interest and tax should be reduced by company and increase the EBIT margin.