week 3RESP

Please RESPONSE TO THE TWO PEERS DISCUSSION PER EACH INSTRUCTIONS BELOW

*DOES THEIR conclusions bring new levels of understanding to your view on McDonald's internal performance or conclusions.

*Discuss any major differences where you might disagree.

* Include an explanation of the value of their contribution to your understanding or where you would "respectfully" disagree 

1A, MR…Conducting internal assessments can uncover key strengths and weaknesses of a company that are vital for growth and strategy formulation. One such type internal evaluation is the internal factor evaluation (IFE) matrix. This matrix weighs and rates major strengths and weaknesses as an evaluation of current strategies and the overall strength of the company’s internal position. In other words, IFE matrices identify how well a firm is capitalizing on strengths and how well they improve weaknesses (David et al., 2023).

 

Since they are quantitative values, financial ratios are excellent choices to include in IFE matrices. These ratios compare financial information over time and to industry averages providing meaningful information (David et al., 2023). These ratios are not meaningful on their own. They must be compared either to a competitor’s finances, the averages of the industry, or across time. Only when used in this way can financial ratios provide an assessment of financial health and adequately contribute to decision-making (Bordeianu & Radu, 2020).

 

Factors	Weight	Rating	Weighted Score
Strengths
Profitability related to assets (Return on Assets)	0.15	3	0.45
Gross Profit (Gross Margin)	0.08	3	0.24
Operational efficiency and profitability (Operating Margin)	0.08	4	0.32
Increase of profits (Net Profit Margin)	0.07	4	0.28
Stronger sales and lower storage costs (Inventory Turnover)	0.07	3	0.21
Weaknesses
Decrease of current ratio meaning less safety cushion between current assets and current liabilities	0.15	2	0.30
More debt than assets	0.15	1	0.15
Company experienced a net loss; Expenses exceeded total revenues	0.10	1	0.10
Health of food products	0.08	2	0.16
Employee Turnover	0.07	2	0.14
Totals	1.0		2.35

 

To make my IFE matrix, I analyzed financial data from the past three years (2024, 2023, and 2022). As the current ratio, debt-to-equity ratio, and return on assets (ROA) are all strongly correlated with the likelihood of bankruptcy, these factors were all given the highest weight for the IFE matrix (Fulzele, 2024). Of those three ratios, only Return on Assets is considered a strength for McDonald’s. The ROA in 2022 was 12.24, jumped to 15.08 in 2023, and was 14.90 in 2024. Although the ROA in 2024 is lower than it was in 2023, it is close enough not to worry about the decrease so much as looking at the overall increase from 2022 to 2024. This increase points to a greater profitability related to company assets (Williams et al., 2023). Because of the overall increase but also keeping in mind the decrease from 2023 to 2024, the factor was rated a 3.

 

Gross margin relates the percentage of revenue a company keeps after accounting for the costs of goods and services sold (Williams et al., 2023). Across multiple years, the gross profit margin ratio remained fairly consistent without any significant increases or decreases. Therefore, this factor was also considered a strength and rated a 3. If there had been some kind of increase in the ratio over the years, the factor may have received a 4 rating.

 

The operating margin ratio and net profit ratio both point to operational efficiency and profitability of a company. In McDonald’s case, both ratios show a decent increase across several years, so they are included as strengths of the company. Because the increases are by a decent amount, the rating for both factors is 4. To capitalize on this, McDonald’s can continue researching ways to make the fast-food process more efficient. One way in which the company is doing this is by experimenting with robots in the food preparation process.

 

Finally, for the inventory turnover ratio, the trend was much like the ROA trend where it increased from 2022 to 2023 but then took a slight decrease from 2023 to 2024. The overall change is still positive meaning that McDonald’s achieved stronger sales and lower storage costs. To capitalize on this strength, the company can continue to look for ways to lower their storage costs. For example, some of their food has to be kept cold. To lower costs, McDonald’s can invest in energy-saving coolers and freezers.

 

Moving on to weaknesses, the current ratio and debt-to-equity ratios were given the highest weight aligning with the source that claimed those values strongly correlate with bankruptcy (Fulzele, 2024). The current ratio is defined as current assets over current liabilities. The higher this ratio, the more safety cushion a company has because there are more ready assets to cover immediate liabilities (Williams et al., 2023). Unfortunately for McDonald’s, this value has decreased over the years in question, so the company has less of a safety net now compared to several years ago. This weakness was rated as a 2.

 

The debt-to-equity ratio was also concerning and received a rating of 1. For each of the last three years, the ratios have been negative meaning that there is more debt than assets (Williams et al., 2023). Finally, the last financial ratio is Return on Equity (ROE). This also demonstrates a negative value, which signals a net loss and that expenses exceeded total revenues (Williams et al., 2023). Additionally, the values are getting much more negative having been -102.89 in 2022 and -216.65 in 2024. To improve this weakness, McDonald’s needs to work on marketing campaigns to increase profits while finding ways to pay off debt as well.

 

The last two weaknesses are not related to financial ratios but are still relevant weaknesses nonetheless. McDonald’s often comes under fire for the health of its food. I remember watching a movie in high school about this guy who ate nothing but McDonald’s for a month. He didn’t gain as much weight as he thought, but he did do a number on his health. He even had to end the experiment early due to heart and liver concerns. To improve on this weakness, McDonald’s can do more research into food options that would increase the health of the items while keeping prices down and the speed of delivery quick.

 

The last factor is employee turnover. McDonald’s often employs younger people who work the job while in school. After they graduate, they often leave McDonald’s for college or other, bigger jobs. Part of this reasoning is due to McDonald’s low wages. However, the low wages help keep the price of food down. In California, franchise owners were concerned about rising minimum wage because of how much they would have to raise food prices. To improve this weakness, McDonald’s can brainstorm ways to show more employee appreciation and look into financial bonuses that wouldn’t cause a rise in prices.

 

In conclusion, according to the IFE matrix, McDonald’s comes out with a final score of 2.35. As this is below 2.5, the company should consider changing some of its current strategies. Debts need to be reduced and the current ratio increased to increase the financial safety cushion.

 

References

 

Bordeianu, G. & Radu, F. (2020). Basic types of financial ratios used to measure a company’s

performance.  Economy Transdisciplinary Cognition, 23(2), 53-58.

 

David, F. R., David, F. R., & David, M. E. (2023).  Strategic management: A competitive

advantage approach, concepts and cases (18th ed.). Upper Saddle River: Pearson.

 

Fulzele, G. (2024). The role of financial ratios in predicting corporate bankruptcy: A study of

distressed company.  Library of Progress-Library Science, Information Technology &

Computer, 44(4), 929-934.

 

Williams, J., Bettner, M., & Smith, K. (2023).  Financial & Managerial Accounting. McGraw-

Hill Education.

2A.JP.. Key Financial Data:  Reported March 31, 2025 (USS&EC, 2025) *All amounts listed are billions*

The financial health of McDonald's can be evaluated through multiple ratio analysis. The current ratio (1.226) indicates good short-term liquidity. The debt-to-equity ratio (-15.521) and debt ratio (1.047) show the degree of debt financing while the negative debt-to-equity ratio indicates negative equity. The profitability of McDonald's can be evaluated through its gross profit margin (56.75%), operating profit margin (45.718%), and net profit margin (31.724%) which all indicate strong profitability. The asset turnover ratio (0.460) shows how well assets are utilized to generate sales. The return on equity (-2.164) and return on assets (0.1460) demonstrate how well the company performs relative to its investments and assets.

IFE Matrix

	Strengths	Weight	Rating	Weighted Score
1	Current Ratio	0.07	3	0.21
2	Gross Profit Margin	0.05	4	0.20
3	Operating Profit Margin	0.06	4	0.24
4	Net Profit Margin	0.02	4	0.08
5	Asset turnover	0.06	3	0.18
6	Strong Liquidity	0.08	4	0.32
7	Positive Working Capital	0.07	3	0.21
8	Good Profitability	0.08	3	0.24
9	Global Brand Recognition	0.02	3	0.06
10	Operating Expense	0.04	3	0.12

    The company should use its worldwide brand recognition to build digital engagement. The My McDonald’s Rewards program needs additional investment to develop personalized offers which should integrate perfectly with digital ordering systems for boosting customer loyalty and repeat purchases (Brand Vision Insights, 2025). This will ultimately enhance customer loyalty as well. McDonalds should expand its high-margin offerings to reach maximum profitability and financial efficiency. The company should develop premium burgers and specialty beverages and plant-based alternatives to focus on high-margin menu items (Brand Vision Insights, 2025). Strong liquidity should be used for strategic investments: The company should use its healthy working capital and liquidity to make investments in technology and expansion initiatives and sustainability efforts that will drive future growth and further enhance profitability.

	Weaknesses	Weight	Rating	Weighted Score
1	Debt-to-Equity Ratio	0.09	1	0.09
2	Debt Ratio	0.05	2	0.10
3	Return on Equity	0.03	1	0.03
4	Negative Retained Earnings	0.09	1	0.09
5	Asset Turnover	0.02	2	0.04
6	Reliance on Debt	0.05	2	0.10
7	Potential for lower Profitability	0.01	2	0.02
8	Static view of Liquidity	0.04	2	0.08
9	Total Equity	0.06	1	0.06
10	Net non-operating interest expense	0.01	1	0.01
	Total IFE Score	1.00		2.48

The improvement of McDonalds debt-to-equity ratio and negative equity requires debt reduction alongside equity financing growth. The company can accomplish this goal through debt reduction by using cash flow to pay down existing debt especially those with high interest rates (Brand Vision Insights, 2025). The company should maintain a proper balance between debt financing and equity accumulation through market opportunities for debt while growing shareholder equity. The company should concentrate on retaining earnings since a strong net income will accumulate more funds for shareholder equity (Brand Vision Insights, 2025). McDonalds can adjust return on equity (ROE) through increased net income levels. McDonald's revenue growth should focus on menu development and geographic expansion through local and plant-based offerings to draw new customers and boost customer frequency (Brand Vision Insights, 2025). The company should expand into emerging markets which show rapid growth potential but should adapt its business strategy to suit local consumer preferences.

References

Brand Vision Insights. (2025, June 05). The magic behind McDonald’s marketing strategy. Brand Vision Insights.  https://www.brandvm.com/post/mcdonalds-marketing-strategy#:~:text=McDonald's%20also%20recognizes%20the%20importance,day%20breakfast%20offerings%20in%202015 .

Companies Market Cap. (2025).  Revenue for McDonald (MCD). Companies Market Cap.   https://companiesmarketcap.com/mcdonald/revenue/#:~:text=According%20to%20McDonald's%20latest%20financial,were%20of%20$25.49%20Billion%20USD .

David, F. R., David, F. R. & David, M.E. (2023).  Strategic management: a competitive advantage approach, concepts, and cases (18th ed.). Upper Saddle River: Pearson. ISBN:  9780137897667

USS&EC. (2025, March 31).  From 10Q. United States Securities and Exchange Commission. Sec.Gov. https://www.sec.gov/ix?doc=/Archives/edgar/data/0000063908/000006390825000025/mcd-20250331.htm

Williams, J., Bettner, M., & Smith, K. (2023).  Financial & Managerial Accounting (eBook with

           Connect access). New York, NY: McGraw-Hill Education. ISBN: 9781266849985

Yahoo Finance. (2025).  McDonald’s Corporation (MCD). Yahoo Finance.  https://finance.yahoo.com/quote/MCD/balance-sheet/