Quality Of Earnings And Accounting Issu
Quality of Earnings and Accounting Issues:
After analyzing McDonald’s financial statements and its accounting practices, we feel that McDonalds has high quality of earnings and it is unlikely to have any negative accounting issues.
1. Cash Flow Adequacy: McDonald’s has positive cash from operations.
2. McDonald’s total accruals and total assets ratio is consistently below zero indicating that there are cash receipts backing up earnings.
3. Quality of Earnings:
A positive TATA ratio is often problematic, especially if the firm has negative earnings. A TATA ratio of less than –5% is usually a good sign, especially if the company has positive earnings. McDonald’s TATA ratio is consistently negative and below the desired maximum of -0.05.
4. Beneish M-Score:
If the M-score is greater than –1.78 then we classify the firm as a possible manipulator. In this case, McDonald’s M-score is consistently below -2.5. These scores indicate that McDonald’s does not exhibit the typical qualities of an earning manipulator.
After analyzing McDonald’s financial statements and its accounting practices, we feel that McDonalds has high quality of earnings and it is unlikely to have any negative accounting issues.
1. Cash Flow Adequacy: McDonald’s has positive cash from operations.
2. McDonald’s total accruals and total assets ratio is consistently below zero indicating that there are cash receipts backing up earnings.
3. Quality of Earnings:
A positive TATA ratio is often problematic, especially if the firm has negative earnings. A TATA ratio of less than –5% is usually a good sign, especially if the company has positive earnings. McDonald’s TATA ratio is consistently negative and below the desired maximum of -0.05.
4. Beneish M-Score:
If the M-score is greater than –1.78 then we classify the firm as a possible manipulator. In this case, McDonald’s M-score is consistently below -2.5. These scores indicate that McDonald’s does not exhibit the typical qualities of an earning manipulator.