Financing the Short Term Obligations of The Business Assignment - 1

Financing the Short Term Obligations of The Business - Assignment Example b. Retained earnings Retained earnings are profits that have been retained within the business for use in the operation of the business instead of being paid out as dividends to its shareholders. One of the operational uses of profits retained in the business is meeting the business short-term obligations. c. Capital Market Sourcing funds through the capital market simply meant getting additional funds through the issuance of new shares of stocks. If a company is unquoted, it simply has to obtain a Stock Exchange quotation to be able to issue shares of stocks to raise funds for the operation of the business (Macdonald and Cheng 1997). d. Financial leases Finance leases are lease agreements between the user of the leased asset (the lessee) and a provider of finance (the lessor) during the leased asset’s useful life (Macdonald and Cheng 1997). This arrangement is usually resorted to in obtaining fixed assets whereby a creditor agrees to act as the lessor by purchasing the asset and lease it to a company. The company will then use the asset and make regular payments to the creditor under the team of the lease (Macdonald and Cheng 1997). II. ... In fiscal year 2009, it experienced a slowdown due to the adverse macroeconomic conditions that includes high unemployment rate caused by the financial crisis in addition to H1N1 pandemic. It still managed to increase its net earnings during the year of comparison (2009). Liquidity Ratio Current Ratio (Current assets/current liability) Current assets (in million) 370.6 Current liabilities 482.3 Current ratio .76 Acid test (Cash + Accounts Receivable + Short-term investment/current liability) Cash 121.7 Accounts Receivable 130 + Total cash and equivalents 251.7 Current liability 482.3 / Acid ratio .52 Efficiency Creditor days 16.78 (see appendix) Debtor days (debt/salesx365 days) 67.5 million/2,537.4 million x 365 days =9.7 days Inventory turnover = 0 (see appendix) McDonalds McDonald's is the leading global foodservice retailer with more than 33,000 local restaurants serving nearly 68 million people in 119 countries each day (McDonalds 2012). It is headquartered in the US and derives its revenue mainly from rent, royalties and fees paid by its franchises in addition to the company sales. McDonalds is also one of the most recognizable brands in the world. Financial Analysis Liquidity Ratios Current Ratio (Current assets/current liability) Current assets(in millions) 3,416 Current liabilities 2,988.70 / Current ratio 1.14 Acid test (Cash + Accounts Receivable + Short-term investment/current liability) Cash 1,796.0 Accounts receivable 1,060.4 + Total 2,856.4 Current liabilities 2,988.70 / Acid test ratio .96 Efficiency Creditor days 18.44 (see appendix) Debtor days (debt/salesx365 days) 181 million/22,744.70 million x 365 days =9.7 days Inventory turnover = 117 Summary 2009 Burger King McDonalds Current Ratio .76 1.14