Quality Of Earnings And Accounting IssuOctober 31, 2017
Quality of Earnings and Accounting Issues: After analyzing McDonald’s financial statements and its accounting practices, we feel that McDonald’s 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 DATA ratio Is often problematic, especially If the firm has negative earnings. A DATA ratio of less than -5% Is usually a good sign, especially If the company has positive earnings. McDonald’s DATA ratio is consistently negative and below the desired maximum of 0. 05. 4. Beanies M-Score: If the Wooster 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.