It would be refreshing if the pundits opining on McDonald’s $5.5 billion income actually knew how to read financial statements – or bothered to consult with someone who does. Income statements do not depict cash, which is the general populace’s frame of reference and thus how the $5.5 billion is implicitly represented. Depreciation, for example, is a component of that income statement. There is no magical depreciation fairy that comes along and takes money out of the bank account. If I buy a machine for $5,000,000 cash on December 31, 2010, my 2010 income statement will show nothing ($0) despite the large expenditure. My income statements for each of the next five years, conversely, will show deprecation of $1,000,000 ($5,000,000 ÷ 5), despite actually spending $0 those years. See the problem? The statement of cash flows is the schedule that actually reflects cash in and cash out, not mere accounting games; it is what the average person would understand as actual income. McDonald’s statement of cash flows for 2012 is ... $400,000. A bit different from $5.5 billion, no? (Now, in fairness, $2.9 billion in cash was distributed to stockholders as dividends, when I would argue all or a portion should have gone to workers as additional wages; regardless, 5.5 is 89.7 percent more than 2.9 - quite an exaggeration.) The point, ultimately, is that if you’re on the right side of an issue (minimum wage should absolutely be increased), don’t overplay your hand. Either you’re cherry-picking and exaggerating (unethical) or ignorant about the topic on which you are opining, which undermines whatever else you have to say, regardless of merit.
Posted on: Thu, 08 Aug 2013 16:17:53 +0000
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