A Financial Analysis of Wendy's International

A financial analysis of Wendy's International Corporation was performed. The results of this analysis are summarized in this section, and the complete results of the analysis are presented in a series of appendices. The McDonald's Corporation, the industry leader in the fast food segment of the restaurant industry, was used as the benchmark firm for purposes of a comparative analysis of Wendy's performance in 1998.

Wendy's, at the close of 1998, was in a strong financial position, as indicated in Appendix A-2. The corporation made better use of its assets in 1998 as compared with 1997 by reducing the proportion of assets held in a current status. As will be explained later in this executive summary, the reduction in the proportion of assets held in a current status did not harm the corporation's liquidity position. Debt increased in 1998; however, debt levels at Wendy's remained modest.

When compared with McDonald's (refer to Appendix A-5), Wendy's tends to hold a much higher proportion of assets in current status than does McDonald's. The major difference between the two corporations in this context is the proportion of assets at McDonald's that are fixed (property and equipment).

With respect to debt, Wendy's relies to a lesser extent on the use of debt than does McDonald's. As a consequence, Wendy's financial position is characterized

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asset turnover than does McDonald's only because the corporation's fixed assets are proportionately so much lower than at McDonald's. Profitability McDonald's is more profitable than is Wendy's regardless of the measure used with the single exception of total capital (refer to Appendix B-4). Wendy's compares well in this measure because the corporation makes little use of long-term debt. Market Value Consistent with McDonald's superior profitability in relation to Wendy's, Wendy's also is well behind McDonald's in relation to market value measures (refer to Appendix B-5). As a company that uses its assets more efficiently, McDonald's is better rewarded by the market than is Wendy's. Appendices The Appendix A series includes common-size financial statements. The Appendix B series includes ratio analyses. The Appendix C series includes an expanded Du Pont chart. Appendix A-1: Common-Size Balance SheetsùMcDonald's Corporation McDonald's Common-Size Balance Sheets 1997-1998 [%] Item 1997 1998 Change Assets Cash 1.9 1.5 -0.4 Receivables 2.6 3.1 +0.5 Inventory 0.4 0.4 0.0 Other 1.4 1.6 +0.2 Total Current 6.3 6.6 +0
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