Question

Please answer the following concerning Mcdonald's and Wendy's? Market value ratios PE ratio Market to book ratio Comments on the market value ratios Year 2017 and 2018.

Answer 1

McDonald's Ratios:

PE Ratio

2017

Market Price / EPS

= $153.49 / $6.61 = $23.22

2018

Market Price / EPS

= $189.90 / $7.54 = $25.19

Market to book ratio

2017

Market Price / Book value per share

= $153.49 / $-6.01 = -25.54

2018

Market Price / Book value per share

= $189.90 / $-8.58 = -22.13

Wendy's Ratios

PE Ratio

2017

Market Price / EPS

= $17.29 / $0.77 = 22.46

2018

Market Price / EPS

= $17.89 / $1.94 = 9.22

Market to book ratio

2017

Market Price / Book value per share

= $17.29 / $1.93 = 8.97

2018

Market Price / Book value per share

= $17.89 / $2.77 = 6.45

Comments:

McDonald's

The PE ratio of McDonald's in the year 2017 was $23.22 while in 2018 it was $25.19, it shows that market has given a higher valuation to McDonald's in 2018 as compared to 2017. The price to book of the company was in negative for both the years. In 2017, it was -25.54, while in 2018 it was -22.13. A lower Market or price to book ratio is preferred. Since, the numbers are in negative, P/B ratio in 2017 was good then in 2018.

Wendy's

The PE ratio of the company in the year 2017 was 22.46 and in 2018 it was 9.22. Thus, it can be seen that market has reduced premium valuation given to Wendy's despite its increase in EPS. This may be due non operational profit in earnings etc.

The M/B ratio of the company is fairly stable, it was at 8.97 in the year 2017, while it is at 6.45 in 2018.

Hence, it can be concluded that in terms of market value ratios, Wendy's is a more stable company and its prices and profits does not fluctuates much as compared to McDonald's profits.