RUNNING HEAD INVENTORY DATA 1 Inventory System Summary Team A QRB 501 INVENTORY DATA 2 Inventory System Summary The purpose of the inventory system summary assignment is to prepare for subsequent assignments in quantitive reasoning for business Team B Researched four inventory systems used in an organization Additionally Team B collected four years of inventory data from each organization and combined the information as a team to compare the inventory systems The summary includes descriptions of each inventory system and comparison describing the advantages and disadvantages of each system Research on McDonald s Brinker International Sears Corporation Wal Mart and University of Phoenix Summer historical inventory system provides analysis of financial control mechanisms and inventory systems McDonald s Inventory Control System Each day more than 46 million people eat at McDonald s fast food restaurant and chains that has more than 40 000 restaurants located in one 120 countries and six continents McDonald s is the world s largest fast food restaurant chain Journal of Hospitality and Tourism Management 2005 Throughout the process the organization employs various control mechanisms that has determined marketing strategies employee behaviors identified competitors products and services compared to McDonald s organization McDonald s financial capabilities and tracking systems to maintain a prosperous and successful business Associated Press 2007 Description of McDonald s Inventory Analysis McDonald s fast food restaurant financial inventory system uses flexible methods to include depreciation value on property and equipment goodwill impairment practice compliance with GAAP foreign currency is transformed into U S dollars dividends once a year distribution significant portion of the budget into advertising fair value cash flow hedges and INVENTORY DATA 3 equity to account for 50 or less of revenue Rugaber 2001 Below are financial details inside McDonald s financial inventory results or ratios McDonald s Inventory Analysis Chart 20 39 34 66 21 79 28 55 Year Liquidity Analysis Current Ratio Quick asset ratio Accounts receivable turnover Days supply of receivables Inventory turnover Days supply of inventory Working capital turnover Profitability Analysis Gross profit margin Operating expense ratio Net profit margin Asset turnover Return on assets Return on equity Capital Structure Analysis Debt to equity ratio Times interest earned Debt service margin Other Relevant Ratios NOPAT Margin Dividend Payout ratio Substantial Growth Rate 2000 0 70 0 66 17 88 20 41 35 82 10 19 75 03 76 62 13 88 0 66 9 12 21 48 1 36 7 75 9 99 16 90 14 20 18 43 2001 0 81 0 76 16 86 21 65 36 04 10 13 74 43 81 86 11 01 0 66 7 26 17 25 1 37 5 96 14 54 14 05 17 58 14 22 2002 0 71 0 66 18 01 20 26 35 07 10 41 74 57 86 28 5 80 0 64 3 73 8 69 1 33 5 65 9633 67 8 23 33 28 5 80 2003 0 76 0 71 23 34 15 64 33 34 10 95 74 83 83 48 8 58 0 66 5 69 12 28 1 16 7 30 N A 10 85 34 22 8 08 INVENTORY DATA 4 Advantages and Disadvantages of McDonald s Analysis Over the four year analysis the two ratios increased each year however there is a decrease from 2001 to 2002 The large increase demonstrates current assets are increasing faster than current liabilities The accounts receivable turnover decreases between 1999 and 2001 The inventory turnover decreases consistently as the company invests money in inventory relative to sales at an increasing rate every year McDonald s working capital is negative in all four years because of current liabilities rate is higher than current assets The gross profit margin decreases 1 over the four years suggesting a balance between profit and sales The operating expense ratio increases approximately 10 from 1999 to 2002 and decreases 3 in 2003 to 83 48 High rate for operating expenses is necessary for a large amount of incremental sales The net profit margin decreased almost 9 from 1999 to 2002 and increased 3 in 2003 The asset turnover remains almost steady and increases 0 04 to 0 67 in 2003 This 0 67 of sales that each dollar of assets produces is low in the industry and the amount of assets can cause questioning The return on assets declines from 1999 to 2002 and increases slightly in 2003 the company should use their assets more efficiently The return on equity is high in 1999 and decreases to half in 2002 and increases 4 to 2003 The company may not be relying on equity to generate income as much as in previous years The capital structure ratio is a reflection of management of McDonald s debt and equity The decline to 1 13 suggests equity funds growth enabling McDonald s to hold on to less debt The times interest earned decreases over time with a slight increase between 2002 and 2003 and with a ratio of 6 05 their income from operations can cover interest expense The debt service margin range 2 8 in 1999 to 14 54 in 2001 and excel to 9633 67 in 2002 because in INVENTORY DATA 5 2002 notes payable declined to 300 000 In 2003 no current notes payable is recorded and provides a profit and operating cash flow Brinker Inventory Control System Brinker International is one of the world s largest operators of casual dining restaurants Brinker is the parent company of two well known brands Chili s Bar and Grill and Maggiano s Little Italy Brinker employs more than 77 000 people in approximately 1 500 locations worldwide and has sales in excess of 2 billion annually A critical part of financial control for a business operating so many locations spread far apart geographically is the ability to rely on strong inventory control systems Inventory is defined as a stock or store of goods Inman 2012 In the restaurant business this is certainly the case that there is a stock of goods that needs to be accounted for Brinker is a prime example of how inventory can be performed in restaurants Description of Brinker Inventory Analysis Brinker utilizes a manual method of inventory management in each restaurant and employs systems to roll up inventory data from each restaurant to determine their final inventory values at the company level Barcode and RFID systems are becoming more popular inventory control systems ClockWork Accounting 2011 however the manual method has proven to be the most practical for this restaurant company Individual packaging within the master package have not to this point been given barcodes as this would require significant handling of raw product and is also somewhat impractical and raises the risk