4Thought Blog

Financial health is critically important to your success as a McDonald’s Owner. To help you measure your financial health, we’re doing a series of articles on the McDonald’s financial standard ratios, what they entail and how to improve them.

If you missed them, check our prior articles Your Next McDonald’s Ratio: Estimated Net Equity Percentage, Understanding and Managing Financial Ratios for McDonald’s Franchisees,An Important Metric for Franchisees: Trailing Twelve-Month Liability Turnover and Cash Flow Coverage Ratio: The Most Popular McDonald’s Ratio.

As mentioned in our previous articles in this series, the Financial Standard has three measures.

We talked in great length in previous articles about the Financial Viability Standard and its three components. The other two standards are: submits timely and accurate financial statements and pays McDonald’s and others on time.

Financial health is critically important to your success as a McDonald’s Owner. To help you measure your financial health, we’re doing a series of articles on the McDonald’s financial standard ratios, what they entail and how to improve them.

If you missed them, check our prior articles Your Next McDonald’s Ratio: Estimated Net Equity Percentage, Understanding and Managing Financial Ratios for McDonald’s Franchisees, and An Important Metric for Franchisees: Trailing Twelve-Month Liability Turnover.

Cash Flow Coverage Ratio seems to be the most popular McDonald’s financial viability ratio and it may well be the most important. This ratio is an indicator of an organization’s ability to pay its creditors. It indicates whether or not the organization generates enough funds to pay all of its business expenses (including compensating the owner), service the debt, and provide sufficient reserves in down times.

Financial health is critically important to your success as a McDonald’s Owner/Operator. To help you measure your financial health, we’re doing a series of articles on the McDonald’s financial standard ratios, what they entail and how to improve them.

If you missed them, check our prior articles Understanding and Managing Financial Ratios for McDonald’s Franchisees and An Important Metric for Franchisees: Trailing Twelve-Month Liability Turnover.

The next financial viability measure we’ll discuss is the estimated net equity percentage. It represents the estimated percentage you own of your business. It’s the hypothetical amount of money that would be remaining after your business is liquidated before paying income taxes.

McDonald’s minimum net equity percentage to be eligible for growth and rewrite is 25%. The estimated net equity is calculated by reducing the estimated restaurant value by the business's net debt. Dividing the estimated net equity by the estimated restaurant value will provide the estimated net equity percentage.

Financial health is critically important to your success as a McDonald’s Owner/Operator. To help you measure your financial health, we’re doing a series of articles on the McDonald’s financial standard ratios, what they entail and how to improve them.

If you missed it, check our introductory article Understanding and Managing Financial Ratios for McDonald’s Franchisees.

In today’s article, we’re going to address the Trailing Twelve-Month Liability Turnover. This ratio represents the number of days of next month’s sales needed to cover any working capital deficit.  

But before we get into the calculation of the ratio, let’s address the concept of working capital.

Owning and operating a McDonald’s franchise business is complicated, and even more challenging if you’re looking for growth and rewrite.

A key to those opportunities is maintaining your financial ratios. McDonald’s Corp. established these ratios to ensure financial stability. A solid understanding of the ratios that make up financial viability, how they are calculated, and why they are important will enable you to make any necessary adjustments to improve your financial viability and often your bottom line.

Sufficient cash flow is incredibly important as a McDonald’s Owner/Operator. It not only provides for smooth daily operations, but your cash flow coverage ratio is closely evaluated by corporate.

A great way to increase your cash flow is to reduce your taxes. Many tax benefits available to McDonald’s Owner/Operators were either re-instated or enhanced with the most recent tax legislation, so now is a great time to put them into effect for your business.

We’re seeing an unprecedented shift in ownership of McDonald’s franchises to the next generation.

So now’s the time to prepare, as McDonald’s Owner/Operators have a better opportunity to transfer more wealth to their children with minimal tax impact than ever before. However, a Next Gen transition takes appropriate planning to address these complex transactions with their many moving parts.