120 Chapter 3 Accrual Accounting Concepts
3 The financial statements for Wendy’s and McDonald’s shown in Exhibit 9 were adapted from 10-K
Securities and Exchange Commission filings.Income Statements for the Year Ending
December 31, 2004Revenues 100.0% 100.0%
Operating expenses 93.8 81.4
Operating income 6.2% 18.6%
Other expenses 1.2 1.8
Income before income taxes 5.0% 16.8%
Income taxes 3.6 4.8
Net income 1.4% 12.0%Balance Sheets as of December 31, 2004Current assets:
Cash and equivalents 5.5% 5.0%
Accounts and notes receivable 4.0 2.7
Inventories, prepaid, and other assets 4.8 2.6
Total current assets 14.3% 10.3%
Other long-term assets 12.2 15.4
Property and equipment 73.5 74.3
Total assets 100.0% 100.0%Total current liabilities 21.5% 12.6%
Other liabilities 24.8 36.3
Total stockholders’ equity 53.7 51.1
Total liabilities and stockholders’ equity 100.0% 100.0%Exhibit 9
Common-Sized
Financial Statements:
Wendy’s and
McDonald’sCOMMON-SIZED FINANCIAL STATEMENTS
Common-sized financial statements are often useful in comparing one company
to another. In common-sized financial statements, all items are expressed in
percentages. Such statements are useful in comparing the current period with prior
periods, individual businesses, or one business with industry percentages. Industry
data are often available from trade associations or financial information services.
To illustrate, common-sized income statement and balance sheet data for Wendy’s
andMcDonald’s Corporationare shown in Exhibit 9.^3 The income statement data are
expressed as a percent of revenues; thus, Exhibit 9 indicates revenues for both compa-
nies as 100%. This, in turn, allows for analysis of the income statement components onDescribe and illustrate how
common-sized financial
statements can be used to
analyze and evaluate a
company’s performance.