McDonald’s Corporation (MCD)
Liquidity ratios
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|
| Current ratio | 1.19 | 1.16 | 1.43 | 1.78 | 1.01 |
| Quick ratio | 0.90 | 1.03 | 1.24 | 1.64 | 1.11 |
| Cash ratio | 0.28 | 0.67 | 0.68 | 1.17 | 0.77 |
McDonald's Corporation's liquidity ratios show fluctuations over the years. The current ratio increased from 1.01 in 2020 to 1.78 in 2021 before decreasing to 1.43 in 2022 and further dropping to 1.16 in 2023, then slightly recovering to 1.19 in 2024. This indicates that the company's ability to cover its short-term obligations with current assets improved in 2021 but has since declined.
In contrast, the quick ratio followed a similar trend, starting at 1.11 in 2020, peaking at 1.64 in 2021, then declining to 1.24 in 2022, 1.03 in 2023, and further dropping to 0.90 in 2024. This ratio reveals the company's ability to meet short-term obligations with its most liquid assets, excluding inventory.
Furthermore, the cash ratio, which represents the proportion of liquid assets to current liabilities, varied over the years, ranging from 0.28 in 2024 to 1.17 in 2021. The downward trend from 2021 onwards implies a decrease in McDonald's ability to settle its short-term obligations using only cash and cash equivalents.
Overall, the liquidity ratios of McDonald's Corporation indicate fluctuations in its short-term solvency position, with a general trend of declining ability to cover immediate obligations with liquid assets over the years. Monitoring these ratios is crucial to assessing the company's financial health and ability to meet its short-term commitments.
See also:
Additional liquidity measure
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Cash conversion cycle | days | -35.06 | -44.64 | -44.36 | -52.34 | -22.94 |
The cash conversion cycle is a key metric that measures how efficiently a company manages its working capital by evaluating the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales.
Analyzing McDonald’s Corporation’s cash conversion cycle from December 31, 2020, to December 31, 2024, reveals the following trends:
1. In 2020, McDonald’s had a negative cash conversion cycle of -22.94 days, indicating that the company was able to collect cash from its operating cycle before having to pay its suppliers, resulting in efficient working capital management.
2. By December 31, 2021, the cash conversion cycle further decreased to -52.34 days, suggesting an improvement in the efficiency of McDonald’s cash management and working capital utilization.
3. Although there was a slight increase in the cash conversion cycle by December 31, 2022, to -44.36 days and by December 31, 2023, to -44.64 days, the company still maintained a negative cash conversion cycle, indicating continued efficiency in converting resources into cash.
4. By the end of December 31, 2024, the cash conversion cycle decreased to -35.06 days, showing that McDonald’s continued to effectively manage its working capital and generate cash flows from its operational activities efficiently.
Overall, McDonald’s Corporation’s consistently negative cash conversion cycle over the period reflects the company's ability to optimize its working capital utilization, efficiently manage its inventory, and collect cash from its sales operations in a timely manner, ultimately contributing to its financial stability and performance.