Income Statement

What information is provided in McDonald's basic financial statements?

McDonald's Corporation (NYSE: MCD) is a publicly held corporation with more than $31 billion in assets. It started in 1940 as a BBQ restaurant in San Bernardino, California. In 1948, McDonald's switched to burgers, shakes, potato chips, and pie. Its Golden Arches are generally believed to be the most recognized symbol in the world.

To follow are McDonald's four basic financial statements for its most recent year, the year ending December 31, 2016. Please note that all statements have been adapted and condensed for educational use and should not be used for investment decisions.

Income Statement

McDonald's Corporation

Income Statement (adapted for classroom use)

For Year Ended December 31, 2016

In millions

Net revenues

$ 24,621.9

Expenses

16,877.4

Operating income (loss)

$ 7,744.5

Other expenses and adjustments

(3,058.0)

Net income (loss)

$ 4,686.5

Statement of Retained Earnings

McDonald's Corporation

Statement of Retained Earnings (adapted for classroom use) For Year Ended December 31, 2016

In millions

Beginning retained earnings

$ 44,594.5

Add net income

4,686.5

Less dividends declared and other*

3,058.3

Ending retained earnings

$ 46,222.7

*Includes adjustment of $(0.1) for stock option exercises

Source: Wendy Tietz, PhD, CPA, CMA, This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

Balance Sheet

McDonald's Corporation

Consolidated balance sheet (adapted for classroom use) As of December 31, 2016

In millions

Assets Current assets:

Cash and cash equivalents

$ 1,223.4

Accounts receivable, net

1,474.1

Inventories

58.9

Prepaid and other expenses

2,092.2

Total current assets

$ 4,848.6

Property and equipment, net

21,257.6

Other long-term assets

4,917.7

Total assets

$ 31,023.9

Liabilities and stockholders' equity Current liabilities:

Accounts payable Other current liabilities

Total current liabilities Long-term debt Other long-term liabilities

Total liabilities Stockholders' equity:

Common stock Retained earnings Other stockholders' equity items*

Total stockholders' equity Total liabilities and stockholders' equity

$ 756.0 2,712.3

$ 3,468.3 25,878.5 3,881.4

$ 33,228.2

$

16.6

46,222.7

(48,443.6)

$ (2,204.3)

$ 31,023.9

*These other items include additional paid-in capital, treasury stock, and accumulated other comprehensive income

Source: Wendy Tietz, PhD, CPA, CMA, This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

Statement of Cash Flows

McDonald's Corporation

Statement of Cash Flows (adapted for classroom use) For Year Ended December 31, 2016

In millions

Cash flows provided by operating activities

$ 6,059.6

Cash flows used in investing activities

(981.6)

Cash flows provided by financing activities

(11,262.4)

Adjustment to reconcile

(277.7)

Net increase in cash and cash equivalents

$ (6,462.1)

Cash and equivalents at beginning of period

7,685.5

Cash and equivalents at end of period

$ 1,223.4

McDonald's complete, unabridged financial statements can be found on its investor relations website. Questions 1. What form of business organization is McDonald's? How do you know? 2. Identify the line item that flows from the income statement to the statement of retained earnings. 3. Identify the line item that flows from the statement of retained earnings to the balance sheet. 4. Identify the line item that flows from the balance sheet to the statement of cash flows. 5. Did McDonald's have net income or net loss for 2016? Over what period of time was this amount earned? 6. Write the accounting equation for McDonald's as of December 31, 2016.

Source: Wendy Tietz, PhD, CPA, CMA, This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

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