Liquidity ratios look at a company ability to turn an asset into cash quickly so they are able to pay their bills without adding undue stress. This is very important to creditors who are seeking payments. “To a creditor, particularly a short-term creditor such as a supplier, the higher the current ratio the better. This is because a higher current ratio indicates liquidity” (Ross, Westerfield, & Jordan, 2011). Two ratios that I looked at for McDonald’s are current and quick ratios. The first liquidity ratio that I looked at is the current ratio.
The formula to determine current ratio Current Ratio = . As you can see from Table #1 below the current ratio for McDonald’s for 2010 is 1.49 times and for 2009 is 1.14 times. What does this mean? It means that for 2010, McDonald’s has $1.49, $1.14 for 2009, in current assets for every $1 in current liabilities or that McDonald’s has its current liabilities covered 1.49 or1.14 times over respectively. The industry current ratio is 1.19 times. Compared to the industry averages, McDonald’s was lower than the industry level in 2009 and above the industry level in 2010. By looking at the figures from the balance sheet (Table #3), you can see that the current assets have risen by $952.2 million from 2009 to 2010