Wendy’s International, Inc., and McDonald’s Corporation, two leading fast-food chains, are classified in SIC code 5812—Eating Places. Recent results for each company, along with industry averages, follow.

a. Which company has the stronger profitability position? Why?

b. Which company uses more debt? Why?

c. How do Wendy’s and McDonald’s compare to the industry averages? Based on your analysis, would you consider these two companies to be industry leaders? Why or why not?

d. The industry data reported here represent Dun and Bradstreet’s industry median. Dun and Brad-street also reports industry norms for the upper quartile (top 25%) of companies in the industry. In the top quartile, return on assets was 15.1%, return on common stockholders’ equity was 34.7%, and net income as a percentage of sales was 6.1%. Do you think it would be more useful to compare Wendy’s and McDonald’s to these upper-quartile industry averages rather than to the median averages? Why or why not?

e. Dun and Bradstreet also provides industry data based on companies’ total assets. In the industry’s largest reporting companies, the median return on assets was 5.1%, the median return on common stockholders’ equity was 9.7%, the median net income as a percentage was sales of 3.6%, and the median debt-to-equity ratio was 0.93. The upper quartile values were 8.4%, 16.4%, 5.2%, and 0.65, respectively. Given that Wendy’s and McDonald’s are among the largest companies in this industry group, does this data change your answers to questions (c) and (d)? Why or why not?

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Wendy's McDonald's Industry Average Return on assets 7.7% 9.9% 6.4% Return on common stockholders' equity Net income as a percentage of sales Debt-to-equity ratio 11.9% 17.7% 14.0% 7.4% 12.7% 2.9% .67 .98 1.04