McDonald’s Corporation (MCD)

The liquidity ratios of McDonald's Corp, including the current ratio, quick ratio, and cash ratio, provide insights into the company's ability to meet its short-term obligations using its current assets.

The current ratio measures the company's ability to pay off its current liabilities with its current assets. Over the past five years, McDonald's current ratio has fluctuated, with a decreasing trend from 1.78 in 2021 to 1.16 in 2023. While the current ratio remains above 1, indicating that McDonald's has more current assets than current liabilities, the decreasing trend suggests a potential decrease in liquidity and ability to cover short-term obligations.

The quick ratio, also known as the acid-test ratio, is a more stringent measure of liquidity as it excludes inventory from current assets. McDonald's quick ratio has also shown a decreasing trend over the years, from 1.76 in 2021 to 1.16 in 2023. Although the quick ratio remains above 1, indicating that McDonald's can cover its short-term liabilities without relying on inventory, the decreasing trend is worth monitoring as it may signal a potential liquidity strain.

The cash ratio is the most conservative liquidity ratio, measuring the company's ability to cover its current liabilities with cash and cash equivalents only. McDonald's cash ratio has varied significantly over the past five years, ranging from 0.35 in 2019 to 0.79 in 2023. While the cash ratio has improved in recent years, indicating a stronger ability to meet short-term obligations with cash holdings, it has been volatile and is lower compared to the current and quick ratios.

In summary, McDonald's liquidity ratios suggest that while the company has the ability to cover its short-term obligations with its current assets, there is a decreasing trend in liquidity over the years. It is essential for investors and stakeholders to monitor these ratios closely to assess McDonald's ability to maintain sufficient liquidity levels.

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See also:

McDonald’s Corporation Liquidity Ratios

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Additional liquidity measure

The cash conversion cycle of McDonald's Corp has shown fluctuations over the past five years. In 2023, the cash conversion cycle was 35.62 days, indicating that it took the company approximately 35.62 days to convert its investment in inventory into cash receipts from customers. This was higher compared to the previous year, which had a cash conversion cycle of 33.30 days.

In 2021, the cash conversion cycle was at its lowest point at 29.43 days, reflecting an efficient management of working capital and a quicker conversion of inventory into cash. However, in 2020, the cash conversion cycle increased to 40.10 days, indicating a potential delay in converting inventory into revenue.

Looking back to 2019, the cash conversion cycle was 38.52 days, showing a slight improvement compared to 2020 but still higher than the more efficient cycles seen in 2021 and 2022.

Overall, McDonald's Corp has experienced fluctuations in its cash conversion cycle over the past five years, with 2021 standing out as the most efficient year while 2020 showed a less favorable performance in this aspect. Monitoring and managing the cash conversion cycle is crucial for the company to optimize its working capital and overall financial efficiency.