Running Head: THE FREE CASH FLOW 1

McDonald’s Inc. and the Wendy’s Company Free Cash Flow

Name

Institution affiliation
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The free cash flow is a very crucial concept in measuring financial performance of a

company. The free cash flow is arrived at by subtracting the expenditures from the operating

cash flow (Christy, 2013). I have decided to illustrate the concept by using the McDonald’s Inc.

and The Wendy’s Company. The two companies are excellent for analysis because they are both

in the beverage and hospitality industry and are widely spread across the globe

2013 Free cash flows

All figures in thousands

M.C. Donald’s Inc. The Wendy’s Company
Operating cash flows 1, 159, 000 329, 847
Less: capital expenditure 803, 000 224, 245
Less: cash dividends 234, 000 70, 681
Free cash flows 122, 000 34, 921

2014 Free cash flows

All figures in thousands

M.C. Donald’s Inc. The Wendy’s Company
Operating cash flows 1, 404, 000 254, 776
Less: capital expenditure 861, 000 298, 471
Less: cash dividends 251, 000 75, 117
Free cash flows 292, 000 -118, 812

The above tables show the free cash flow for both companies in 2013 and 2014. The

M.C. Donald’s Inc. free cash flow has increased from $122000000 in 2013 to $292000000 in

2014 (McDonald’s Inc. & United States, 2016). It is an indicator that the company is performing

well and a result, investors will earn dividends even if the company is dissolved. Such

improvement could be as a result of efficiency improvement, reduced dividend distribution, and

reduction in costs. The increased free cash flow makes the shares for this company attractive,

thereby raising the company’s value. On the other hand, Wendy’s free cash flows decreased from

$34921000 to $-188812000 (The Wendy’s Company & United States, 2016). Maybe the
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company financed the purchasing of its assets using debt, and it is poorly managed which is

reflected by the inefficiencies and poor performance. To get them out of this situation, Wendy’s

might consider taking up debt so as to finance its operations.

References

Christy, G. C. (2013). Free cash flow: Seeing through the accounting fog machine to find great

stocks. Hoboken, N.J: Wiley.

McDonald’s Inc. & United States. (2016). Form 10-K annual report. Washington, D.C:

Securities and Exchange Commission.

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The Wendy’s Company & United States. (2016). Form 10-K annual report. Washington, D.C:

Securities and Exchange Commission.