Crash Course in Accounting and Financial Statement Analysis, Second Edition

Notes to Consolidated Statements

Notes to Consolidated Statements provide supplementary information to consolidated financial statements and are considered an integral part of the financial report. They must be read as thoroughly as the financial statements themselves!

They can be separated into three major categories:

1. Summary of Accounting Policies. Provides an overview of major Generally Accepted Accounting Principles (GAAP) used by a company in the preparation of its financial statements (Exhibit 4.7).

2. Explanatory Notes. Offers a detailed overview on a number of supplementary financial metrics, including:

   • Fixed assets

   • Stock options

   • Financing and debt

   • Leases

   • Shareholders’ equity

   • Taxes

   • Employee benefit plans

3. Supplementary Information Notes. Provides additional details about a company’s operations, including:

   • A listing of reserves for an oil and gas company

   • Breakdown of unit sales by product line

   • Breakdown by geographic segments

Exhibit 4.7. Summary of Significant Accounting Policies Sheds Light on Major GAAP Governing a Company’s Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of business The Company primarily franchises and operates McDonald’s restaurants in the food service industry. The Company also operates Boston Market and Chipotle Mexican Grill (Chipotle) in the U.S. and has a minority ownership in U.K.-based Pret A Manger. In December 2003, the Company sold its Donates Pizzeria business. All restaurants are operated either ...