McDonald’s Corp. (NYSE:MCD)

The analysis of the financial ratios over the reported periods reveals several key trends in operational efficiency and liquidity management.

Inventory Turnover

The inventory turnover ratio exhibits fluctuations but generally maintains a high level, peaking notably at 183.32 in the third quarter of 2022. While slight declines are seen intermittently, the ratio remains elevated, suggesting efficient inventory management with rapid stock movement. The number of days in the average inventory processing period remains stable at around 2 to 3 days, reinforcing this observation.

Receivables Turnover

Receivables turnover improves significantly from 3.86 to a high of 5.93 in mid-2022 before experiencing variability and a slight declining trend in later periods, falling to 3.75 by mid-2025. Correspondingly, the average receivable collection period shortens initially from 95 days to as low as 62 days, then extends back toward 97 days, indicating that receivables are collected more slowly in recent periods.

Payables Turnover

The payables turnover ratio shows variation with initial improvements reaching above 10 but declining afterwards to below 8 in some quarters, before partially recovering again. The average payables payment period reflects this pattern, fluctuating between around 32 and 49 days. These changes suggest alterations in payment policies or cash flow management impacting vendor payments.

Working Capital Turnover

The working capital turnover ratio displays substantial volatility, with extremely high values early on, then plunging to single digits or missing values in some quarters, and later partial recoveries. This irregularity implies instability or significant changes in working capital components or operational efficiency relative to sales.

Operating Cycle and Cash Conversion Cycle

The operating cycle generally ranges between 64 and 99 days, showing a pattern where improvements in inventory and receivables management are occasionally offset by lengthening payables payment periods. The cash conversion cycle decreases from 59 days to a low of 27 days by early 2021, indicating improved liquidity efficiency, but then trends upwards again reaching 62 days by mid-2025, signaling a potential deterioration in the time taken to convert investments in inventory and other inputs into cash.

In summary, the data indicates that while inventory management remains consistently efficient, receivables collection and payables payment practices have experienced instability, affecting overall liquidity cycles. The cash conversion cycle improvements observed early in the period have not been sustained in the long term, suggesting increasing pressure on working capital management toward the latest quarters analyzed.

The analysis of the financial data over the observed periods reveals several noteworthy patterns and trends regarding the company-owned and operated restaurant expenses, inventories, and inventory turnover ratio.

Company-owned and operated restaurant expenses

These expenses demonstrated fluctuating behavior throughout the timeline. The initial quarter ended March 31, 2020, recorded expenses at 1,753 million US dollars, decreasing to a low point of 1,448 million US dollars by June 30, 2020. Subsequently, expenses rose steadily, peaking at 2,108 million US dollars in September 2021. Following this peak, there were variations with a general downward trend towards the end of 2025, where expenses again approached values around 2,000 million US dollars, although some quarters showed slight increases. Overall, the expenses show cyclical fluctuations with intermittent peaks but tend to remain above the initial period after mid-2020.

Inventories, at cost, not in excess of market

Inventory values have shown gradual increments with some variability. Beginning at 39 million US dollars in March 2020, inventory values increased over time with occasional dips; for instance, a slight decrease occurred after reaching 56 million US dollars in December 2021, falling to around 43 million in mid-2022. The inventory then rebounded and exhibited minor oscillations within the range of approximately 46 to 56 million US dollars in the subsequent periods. This indicates stable management of inventory levels relative to market conditions, maintaining moderate increases and timely adjustments where necessary.

Inventory turnover

The inventory turnover ratio, calculated from the available periods, consistently remained at high values, ranging from approximately 136 to over 183. This suggests strong efficiency in inventory management, with the ratio peaking in September 2022 at about 183.32 and generally maintaining values above 140 throughout the reporting periods. The turnover ratio exhibits a tendency to rise after troughs, highlighting effective inventory liquidation and replenishment strategies. Such elevated turnover implies that the company is able to minimize holding costs and maintain liquidity in inventory assets.

In summary, the financial data reflect dynamic expense management of company-operated restaurants, with significant fluctuations likely impacted by varying operational or external factors over the quarters. Inventories have been carefully regulated, avoiding excessive accumulation while allowing for sufficient stock levels. The consistently high inventory turnover ratio further underscores efficient inventory practices, contributing positively to working capital management.

The analysis of the quarterly financial data reveals several noteworthy trends across sales, receivables, and receivables turnover ratios.

Sales by Company-owned and Operated Restaurants

Sales demonstrate considerable volatility over the observed quarters. Initial sales levels start at approximately 2,026 million USD in early 2020, followed by a decline to around 1,594 million USD in the next quarter. Subsequently, sales recovered and exhibited a general upward trend through late 2021, peaking near 2,598 million USD in the third quarter of 2021. However, the data shows fluctuating performance from 2022 onward, with sales dipping below 2,200 million USD in several quarters and rising again sporadically, peaking again around 2,656 million USD in the third quarter of 2024 before ending lower near 2,132 million USD in the penultimate quarter of 2025. Overall, the sales figures suggest cyclical fluctuations with periods of growth and contraction but no clear sustained upward or downward momentum.

Accounts and Notes Receivable

Receivables amounts also experience substantial short-term variability. Starting around 1,695 million USD in early 2020, the figure spikes sharply to 2,853 million USD in the subsequent quarter, then declines and stabilizes between approximately 1,600 and 2,500 million USD in the following periods. Notable upward movements occur near the end of 2023 and into 2024, reaching highs near 2,550 million USD. This reflects an increase in outstanding amounts owed to the company during some periods, which may correspond to sales trends or changes in credit policy.

Receivables Turnover Ratio

The turnover ratio begins at 3.86 in late 2020 and generally trends upward to a peak of 5.93 in early 2022, indicating a quicker conversion of receivables to cash during this period. After this peak, the ratio declines steadily, stabilizing around 4.0 and gradually trending down to approximately 3.75 by mid-2025. The initial increase followed by a steady decrease suggests changing efficiency in collection practices, with the company initially improving receivables collection speed but later experiencing a loosening or slowdown in this process.

Interrelations and Implications

The sales and receivables data indicate some correlation, particularly where increased sales generally coincide with rising receivables balances. However, receivables do not increase proportionally to sales at all times, implying fluctuating credit and collection dynamics. The receivables turnover ratio’s movement further supports this, highlighting varying efficiency in collecting receivables across the quarters. The peak in turnover followed by its decline may signal temporary improvements in working capital management that were followed by challenges or strategic shifts.

In summary, the company experienced fluctuating sales with peaks and troughs across the analyzed quarters, while accounts receivable exhibited variability reflective of underlying sales performance and credit management. The receivables turnover ratio points to periods of enhanced collection efficiency alternating with phases of relative decline, signaling dynamic operational conditions during the timeframe evaluated.

Company-owned and operated restaurant expenses

The expenses demonstrate a fluctuating but generally upward trend over the observed periods. Initial values showed a decrease from 1753 million USD at March 2020 to 1448 million USD by June 2020, likely reflecting an adjustment phase. Subsequently, expenses mostly increased, reaching a peak around the fourth quarter of 2023 at 2248 million USD. However, some intermittent declines are observed, notably at the start of 2024, suggesting potential cost management actions or operational adjustments. The expenses remain elevated compared to early 2020, indicating a rise in operational costs or expansion.

Accounts payable

Accounts payable values revealed a general upward trend with intermittent fluctuations. Starting at 672 million USD in March 2020, the payable increased notably during the second half of 2021 and early 2022, peaking at 1103 million USD in the last quarter of 2021. After this high, the payable figures oscillate, showing moderate declines and rises but remaining mostly above the 800 million USD mark. This pattern suggests changes in payables management or supplier credit terms, with periodic accumulation and reduction phases.

Payables turnover ratio

The payables turnover ratio was consistently high but showed variability across quarters. Starting from 9.42 in Q1 2020, the ratio increased to peaks above 10 during mid-2020 and early 2021, indicating faster payment cycles in those periods. Thereafter, a decrease is notable, with some quarters falling below 8, particularly in late 2021 and 2023, implying slower turnover. The ratio tends to fluctuate between 7.5 and 10, reflecting changes in payment practices, supplier negotiations, or cash flow management. The lowered turnover ratios in some quarters may suggest extended payables periods, perhaps as a liquidity management strategy.

The financial data reveals several key trends over the observed periods for the analyzed company. Working capital values exhibit considerable volatility, alternating between positive and negative figures frequently, which suggests fluctuating short-term liquidity management. Notably, working capital reached a high of 3569 million US dollars in March 2020 but sharply declined to a negative balance of -637 million in June 2020. Throughout subsequent quarters, the working capital figures oscillated without establishing a consistent upward or downward trend, indicating potential challenges in balancing current assets and current liabilities effectively on a quarterly basis.

Sales from company-owned and operated restaurants demonstrate a generally positive trajectory with seasonal fluctuations. Initial values in early 2020 start near 2026 million US dollars, drop somewhat in mid-2020, and then show a recovery and gradual increase with occasional decreases. The highest sales figures during the period occurred intermittently, with a peak close to 2656 million in September 2024. Despite some quarterly downturns, sales have largely maintained strength and growth momentum over the longer term.

The working capital turnover ratio, where available, appears highly irregular and in some quarters extraordinarily high, which may indicate data limitations or extraordinary operational events affecting this metric. Early in the dataset, turnover is missing, but from March 2021 onward, the calculated ratios vary widely, ranging from as low as approximately 3.13 to as high as over 131.28, suggesting inconsistent utilization of working capital in relation to sales. These extreme fluctuations imply that the company may be experiencing varying efficiency in using its working capital to generate sales revenue across different quarters.

Working Capital

Significant variability with alternating positive and negative values, reflecting instability in short-term liquidity.

Peaks and troughs suggest recurrent issues in aligning current assets with liabilities.

Sales by Company-owned and Operated Restaurants

General upward trend with noticeable seasonal patterns and some dips during mid-2020 and other quarters.

Overall resilience and growth in sales over the analyzed timeframe, with peak sales reaching above 2600 million US dollars.

Working Capital Turnover Ratio

Highly volatile and sporadic values with some extraordinarily high figures, indicating irregular efficiency in working capital usage.

Lack of consistent ratio data limits reliability; potential operational fluctuations or measurement issues are present.

In summary, while sales performance of company-operated restaurants shows a positive trend and relative stability, working capital figures reflect ongoing liquidity management challenges. The working capital turnover ratio's wide variability points to inconsistent operational efficiency with regard to managing current assets and liabilities relative to sales generation. Attention to stabilizing working capital and improving turnover efficiency could enhance overall financial stability.

The financial data reveals certain consistent patterns in inventory management metrics over the observed periods.

Inventory Turnover Ratio

The inventory turnover ratio demonstrates fluctuations but maintains relatively high values throughout the quarters where data is available, specifically from March 2021 onward. It generally ranges between approximately 136 and 183, indicating a strong rate of inventory turnover. Notably, peaks occur around September 2022 (183.32) and June 2024 (181.22), suggesting periods of particularly efficient inventory movement. Slight dips are observed intermittently, such as in March 2022 (144.74) and the later quarters of 2024 and into 2025, although these remain within a healthy range. The variation in turnover suggests some seasonality or operational adjustments affecting inventory levels.

Average Inventory Processing Period

The average inventory processing period stays very consistent, predominantly at 2 days across almost all periods, with occasional increases to 3 days. This short processing duration supports the high inventory turnover ratio, reflecting efficient inventory management practices with rapid processing times. The slight increases to 3 days, occurring sporadically, may correspond with slight slowdowns or increased inventory retention during certain quarters, but these remain exceptions rather than trends.

Overall, the data indicates a stable and efficient inventory management system with high turnover rates and rapid processing periods. The observed variations do not imply major disruptions but rather normal operational fluctuations. The consistency in processing period alongside a robust turnover ratio suggests effective control over inventory levels and responsiveness to demand changes throughout the periods analyzed.

Receivables Turnover Ratio

The receivables turnover ratio begins at 3.86 in March 2021 and shows a rising trend through mid-2022, reaching a peak of 5.93 in June 2022. Following this peak, the ratio declines gradually, stabilizing between approximately 4.1 and 4.2 during 2023. Entering 2024 and beyond, the trend continues downward, reaching 3.75 by June 2025. This pattern indicates an initial improvement in the efficiency of collecting receivables, followed by a period of decline in turnover efficiency over the subsequent years.

Average Receivable Collection Period

The average receivable collection period moves inversely to the turnover ratio, starting at 95 days in March 2021 and decreasing to a low of 62 days in June 2022. After this low point, the collection period gradually increases through the remainder of 2022 and 2023, fluctuating between 87 and 93 days. In the period from 2024 to mid-2025, the collection days exhibit a slight upward trend, reaching 97 days by June 2025. This suggests that after an improvement in the speed of collections through mid-2022, the company experienced lengthening collection periods thereafter, implying slower receivables conversion into cash over time.

Overall Insights

The trends observed in both ratios imply that the company's receivables management became more effective until mid-2022, reflected by a higher turnover ratio and shorter collection periods. However, subsequent data points indicate a deterioration in these metrics, suggesting challenges in maintaining the pace of receivables collection. The reversal in these trends may warrant further examination of credit policies, customer payment behaviors, or external economic factors influencing the collection process. Maintaining efficient receivables turnover is crucial for liquidity, and the recent decline could impact working capital management.

Inventory Processing Period

The average inventory processing period demonstrates a consistent trend following its initial absence in data prior to March 2020. Beginning with 3 days in March 2021, the inventory processing period stabilizes around 2 to 3 days for the remaining periods up to June 2025, suggesting efficient and steady inventory management throughout the reported timeline.

Receivable Collection Period

This period shows a noticeable decline in 2020, reducing from 95 days in March 2020 to 70 days by December 2020. In 2021, the figures fluctuate moderately between 62 and 88 days. From 2022 onward, a gradual increase is observed, with values nearing and occasionally surpassing the mid to high 80s and low 90s days, reaching 97 days by June 2025. This indicates increasing customer payment delays or more extended credit terms over time, which could impact cash flow management.

Operating Cycle

The operating cycle exhibits a pattern similar to the receivable collection period. Starting at 98 days in March 2020, it decreases sharply to 72 days by September 2020 and remains around 70 to 78 days through 2021. Nonetheless, from 2022 onwards, the operating cycle lengthens consistently, peaking near 99 days in June 2025. This trend aligns with the extended receivable collection periods and suggests an elongation in the company's overall cash conversion cycle.

Payables Turnover

The payables turnover ratio shows fluctuations over the observed quarters. Starting from a reading of 9.42 in March 2020, it generally increased to a peak of 11.4 in June 2022. After that peak, the ratio mostly declined, reaching a low of 7.46 by March 2024. More recently, the turnover ratio has been somewhat variable but with a modest upward trend toward values near 9.7 by June 2025. This suggests that the company initially improved its efficiency in paying suppliers but experienced variability in later periods.

Average Payables Payment Period

The average payment period in days inversely correlates with the turnover ratio, as expected. The period started at 39 days in March 2020, showed a downward trend to 35 days by June 2021, indicating quicker payments to suppliers. Following this, the payment period increased noticeably, peaking at 49 days in March 2024. After March 2024, the payment period decreased again to 37 days by June 2025. This pattern reflects alternating phases of tighter and more relaxed payment terms or cash management policies over the span.

Relationship and Insights

The inverse relationship between payables turnover and the average payment period is evident throughout the timeline. Periods with higher turnover ratios correspond to shorter payment periods, illustrating a faster settlement of payables. Conversely, when the turnover ratio declines, the payment period extends, implying slower payments. The data suggests periods of operational adjustments or strategic changes in working capital management, possibly responsive to external financial conditions or company policy shifts.

The analysis of the quarterly financial metrics reveals several important trends within the observed periods. The focus is on the average inventory processing period, average receivable collection period, average payables payment period, and the resultant cash conversion cycle, each measured in number of days.

Average Inventory Processing Period

This metric remains notably stable over time, predominantly fluctuating between 2 and 3 days. Starting from a baseline of 3 days in early 2021, it consistently oscillates without any significant upward or downward trend, indicating steady inventory management efficiency across the observed quarters.

Average Receivable Collection Period

The receivable collection period shows variation with a generally downward trend followed by periodic reversals. Initially, there is a decline from 95 days in March 2020 down to a low of 62 days by mid-2022, suggesting improved efficiency in collecting receivables during this timeframe. However, from late 2022 onwards, the period lengthens again, reaching as high as 97 days by mid-2025. This indicates a less efficient collection process or potential changes in credit policies or customer payment behavior in the later periods.

Average Payables Payment Period

The payables payment period also fluctuates throughout the quarters, with values ranging mainly between 32 and 49 days. There is an observable spike during several quarters, such as achieving 49 days in March 2024, indicating possible extensions in the time taken to pay suppliers. Such variations may reflect strategic cash flow management decisions or negotiation changes with creditors.

Cash Conversion Cycle

The cash conversion cycle (CCC) displays a downward trend from 59 days in early 2020 to a low of 27 days by March 2021, demonstrating a significant improvement in overall working capital efficiency. Subsequently, the CCC exhibits a rising trend, peaking at 62 days by June 2025. This increase implies a lengthening in the amount of time the company’s capital is tied up in the working capital cycle, which may warrant closer management attention. The fluctuations in CCC largely mirror the changes in receivable collection and payables payment periods.

Overall, the data suggests that while inventory turnover remains steady, there are notable fluctuations in receivables and payables management. The initial improvement in receivable collections and the shorter cash conversion cycle signal enhanced operational efficiency in the early periods. However, the reversal of these trends in more recent quarters, alongside elongated payables periods, points towards emerging challenges in working capital management. Monitoring and addressing the factors contributing to longer collection times and increased cash conversion cycles may be critical to sustaining financial health and operational effectiveness.