Deciphering Financial Statements (McDonald’s Corporation)
McDonald’s Corporation is in the business of—wait, we all know what McDonald’s does. The company’s earnings per share information and an accompanying note relating to its computation of EPS follow.
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McDonald’s Consolidated Earnings per Share |
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Years Ended December 31, |
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(In millions, except per share data) |
2004 |
2003 |
2002 |
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Net income |
$2,2785 |
$1,4714 |
$8935 |
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Net income per common share |
$181 |
$116 |
$070 |
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Net income per common share—diluted |
$179 |
$115 |
$070 |
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Dividends per common share |
$055 |
$040 |
$024 |
PER COMMON SHARE INFORMATION
Diluted net income per common share is calculated using net income divided by diluted weighted average shares. Diluted weighted average shares include weighted average shares outstanding plus the dilutive effect of primarily stock based employee compensation calculated using the treasury stock method. The dilutive effect of stock options was (in millions of shares): 2004–14.0; 2003–6.7; 2002–8.4. Stock options that were not included in dilutive weighted verage shares because they would have been antidilutive were (in millions of shares): 2004–85.5; 2003–159.1; 2002–148.0.
Answer the following questions.
1. Compute the average number of shares outstanding used in McDonald’s computation of net income per common share for 2004, 2003, and 2002. Do the computation for both basic and diluted EPS.
2. Compute McDonald’s dividend payout ratio (based on basic EPS) for 2002 through 2004. Has the ratio increased or decreased by a significant amount over the 3 year period?
3. For each year in the 3 year period 2002–2004, compute the percentage of total stock options that were dilutive. Comment on why the percentage differs from year to year.