Running Head: GROUP CASE STUDY ONE 1
Group Case Study One: McDonald’s
Group 5
Evan Richvalsky
Cheri Rose
Jennifer Shanks
Betty Smith
Luke Sutton
Liberty University Online
February 12, 2017
Group Case Study One
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1.Executive Summary
Executive Summary
McDonald’s Corporation is one of the leading chains within its industry of fast food’s.
thus, allowing them to create an impressive brand name. McDonald’s has been able to
successfully operate nationally as well as internationally having over one hundred thousand
chains in combination with their owner operated, franchisees and their joint ventures. They have
strategically managed to sustain within their market by using the very successful business model
of franchising.
‘McDonald’s company has strategic partnerships with CITIC Limited, CITIC Capital,
and The Carlyle Group to expand its business in Mainland China and Hong Kong. McDonald’s
Corporation was founded in 1940 and is based in Oak Brook, Illinois.” (S & P Global Market
Intelligence, 2016). McDonald’s has been able to create an incredible market value for
themselves that stands in a class by themselves. McDonald’s business strategy has allowed their
franchising business model to give them the competitive advantage. They have bridged the
overall gap of Glocalization that has equipped them to branch out their overseas markets.
2. Existing Mission, Objectives, and Strategies
3. New Mission Statement
4. Analysis of McDonald’s Existing Business Model
Before identifying the elements of the McDonalds Corporation for modification, it is
imperative to understand the current state of company and what can be done in order to best
serve the shareholders in the coming years. McDonalds Corporation officially began its
operations in 1961; however, the concept, the dream, the vision started 7 years prior to that date
as McDonald’s System, Inc. McDonalds started as a simple restaurant run by two brothers Dick
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and Mac McDonald; Ray Kroc came across this establishment and was impressed. “They
produced a limited menu, concentrating on just a few items – burgers, fries and beverages –
which allowed them to focus on quality and quick service” (McDonalds, 2017). Kroc bought the
rights to the name and fast-forward to 1958 and this restaurant had sold 100 million hamburgers.
The business model; which has been in place since Ray Kroc first saw his vision of a successful
business turn into a reality; the ability to be consistent. Ray Kroc’s wanted McDonalds to be
known for high quality food that would taste the same (consistent) whether a customer is eating a
burger in Alaska or California. Mr. Kroc’s came up with the slogan, “In business for yourself,
but not by yourself” (McDonalds, 2017). This slogan is to encompass both the suppliers and his
franchisees. “His philosophy was based on the simple principle of a 3-legged stool: one leg was
McDonald’s franchisees; the second, McDonald’s suppliers; and the third, McDonald’s
employees” (McDonalds, 2017).
Ray Kroc put together a business model, which is composed of: the food consistently
tasting the same in each and every restaurant and all restaurants, whether corporate or franchised
adhering to the strict core principles of quality, service, cleanliness and value (McDonalds,
2017). One interesting note to add: the corporation did not create some of the most famous menu
items at McDonalds; they were created by franchisees, such as Filet-O-Fish, Egg McMuffin and
the Big Mac.
5. SWOT Analysis
Strengths
The Golden Arch speaks for itself in the representation of McDonald’s brand name. They
have been able to transpose their image globally with has strengthened their stability. “The
Company operates and franchises McDonald’s restaurants, which serve a locally-relevant menu
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of quality food and drinks sold at various price points in more than 100 countries” (McDonald’s
Corporation, 2017). McDonald’s store locations are their strengths being made up of both
franchised and company-owned restaurants. They have 2,100 restaurants in over 19 countries
located within Latin America as well as the Caribbean, and 3,000 restaurants in Japan. In all
McDonald’s have over 100,000 restaurants which includes their franchisees, licensed to
developmental licensees & foreign affiliates as well as their company-operated restaurants (S &
P Global Market Intelligence, 2017). One can clearly see that McDonalds’s Business Model has
indeed given them a strategic advantage in allowing this to enable them to so bountifully
penetrate the markets nationally as well as internationally. They are a global giant within the fast
food industry due to these internal factors within their organization that is consistently being
strengthened from within.
Weaknesses
McDonald’s weaknesses range from menu selections not being as healthy as they can be
to having a congested menu. Today’s economy is calling for a much healthier menu selection
from McDonald’s. McDonald’s negative publicity that is being has been perceived on their
unhealthy menu has forced McDonalds to offer healthier choices, such as their fruit smoothies.
McDonald’s not using natural resources such as organic products is also a weakness that they
should improve upon. (see appendix 1)
Opportunities
McDonald’s opportunities with their industry is endless due to their name brand,
however, they must continually keep up their overall standards. McDonalds should first start
with the opportunity to fine tune their menu in offering healthier chooses. Giving the people
what they desire along with increased wages for their staff. McDonalds has the opportunity of
Group Case Study One
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setting the trend within the fast food industry when it comes to increasing their employees’
wages. They also could increase their access by continued expansions globally both as owner
operated and franchisees.
Threats
Competition would be McDonald’s number one threat, as all fast food owners will view
them as a force to be reckoned with. McDonalds’s must ensure that they are satisfying their
customer because their customers are the reason that they are ranked as a top competitor within
their industry. Therefore, they must ensure that they are targeting their audience accurately;
otherwise, they will lose their loyal customers because they are not adhering to their healthier
lifestyles. (See appendix 1)
6. BCG Matrix
BCG Matrix analysis can be found in figure two of the appendix.
7. Competitive Forces
McDonald’s firm strategy has been thus far successful against their competition. This is
because they have been able to be effective when responding to their industries competitive five
forces. They are one of the leading fast food industries in the business. The managers at
McDonald’s have been able to sustain a competitive advantage by creating an economic value.
This value was realized because their product was higher than their actual cost to produce their
goods. The competitive five forces per Porter is threat of entry, power of suppliers, power of
buyers, threat of substitutes and rivalry among existing competitors.
Threat of Entry
McDonald’s threat of entry is an extremely high force because they are in the fast food
business. McDonald’s has been able to constantly compete with their competitors, who
Group Case Study One
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specialize in producing other sources of fast foods such as Pizza Hut. McDonald’s have been
able to maintain their menu at a reasonable price with their bottom line remaining steady, even
with all the firms having comparable prices. The threat of entry force is one that has shaped
McDonald’s firm strategy in remaining successful and allowing them to have their competitive
advantage. They realize that these external forces play a valuable role in their success and
recognizing this has allowed them to remain sustainable with their market.
Power of Suppliers
McDonald’s power of suppliers is a weak competitive force for them because of the vast
number of suppliers that are available. McDonald’s does not have to worry about their supplier’s
increasing their prices because their suppliers know that they can go elsewhere to get the same
supplies for the right price, thus these products are not differentiated. This makes the relative
bargaining power of suppliers very weak / low for McDonald’s.
Power of buyers
This force too is extremely high for McDonalds when it comes to what their consumers
desire. As mentioned within the first force because of the number of different choices within the
fast food industry consumers can pick and choose at their leisure. McDonald’s has been able to
secure loyal customers and has been able to withstand this force in doing so. Still McDonald’s
must improve on their consumer’s loyalty, when it comes to substitutes, this will ensure that their
buyers will not “backwardly integrate into the industry” (Rothaermel, 2014, p. 71).
Threat of Substitutes
McDonald’s threat of substitutes is high / strong by way of frozen foods and many other
substitutes that their consumers will choose over their products. McDonald’s has been able to
keep their advantage because their low prices on their meals and there is no preparation time
Group Case Study One
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involved. This places a higher value of investment for the consumer to choose McDonald’s over
their substitutes (Convenience). However, lately, this external factor is demanding a more
healthier selection by their consumers. McDonald’s should invest in detailing a healthier
selection to minimize this threat.
Rivalry among existing competitors
This force is strong for McDonald’s and their managers recognized this and created their
dollar menu. They knew that they had to catch the attention of their competitor’s consumers.
This can potential drive a business to close if all their consumers are going to that of their
competitors. McDonalds must ensure that their product is constantly improving to satisfy their
consumers. Price cutting will allow them to steal some of their competitor’s consumers,
however, quality of their product will keep these consumers.
Competitive Profile Matrix Analysis
McDonald’s competitive profile matrix is evident that they are one of the leading fast
food chains in the world. From their market shares to their price competitiveness they have
managed to sustain their competitive advantage. Maintaining ratings of 4’s and 3’s in all their
critical success factors has allowed them to continue their success. However, it is imperative that
they re-think their product quality as their consumers demand change for a more healthier
selection. (See Appendix 4)
8. Current and Historical Financial Statements
The three most current financial statements including year-to-year changes are found in
Figure 5. These statements have been put into place in order to guide recommendations for future
revenue streams. The past three years of income statements (Figure 6) and cash flows (Figure 7)
have also been included to evaluate the improvement possibilities.
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9. Ratio Analysis
Current and Quick (Acid Test) Ratios
•
2012 – The computed Current Ratio: 1.45.
•
2015 – The computed Current Ratio: 3.27.
•
2012 – The computed Quick Ratio: 1.41.
•
2015 – The computed Quick Ratio: 3.23.
There was steady growth in these ratios from 2012 to 2013, and a slight decrease in 2014.
However, from 2014 to 2015, there was tremendous growth in all liquidity ratios. Based on an
article from Forbes.com in 2014, growth was stunted due to weather conditions causing less
traffic and the rise of commodity costs. According to CNBC, he growth in 2015 exploded in
large part due to an increase demand in China and breakfast menu being accessible all day. The
increase in liquidity ratios streghthen the ability of the organization to account for short-term
debts without the need for financing. Competitor QSR (Burger King) saw a dramatic decline
while MCD exploded in the same time frame.
Gross Profit Margin
•
2012 – The computed Gross Profit Margin: 39%.
•
2015 – The computed Gross Profit Margin: 39%.
McDonald's top 3 competitors are Yum Brands (Taco Bell), Wendy's and Burger King. Taco
Bell stayed stagnate as they had no progress from a gross margin perspective from 2012-2015.
Wendy's had a 48% gross profit increase over the same timeframe. Burger King suffered a
significant decrease in gross profit margin of almost 37% from 2014 to 2015. Based on the
competitors performance, McDonald's was similar to Taco Bell falling in the middle of the pack.
McDonald's remained status quo year over year after the remaining revenues stayed constant
Group Case Study One
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from cost of goods sold. The firm does not change its ingredients and does not offer many
discounts so their gross profit margin will remain unchanged.
Operating Profit Margin
•
2012 – The computed Operating Profit Margin: 31%.
•
2015 – The computed Operating Profit Margin: 28%.
McDonald's and Burger King operating profit margin are roughly around the same with
McDonald's being 28%. These two are leaders of the competition compared to Taco Bell and
Wendy's being around 15%. The reason for low profitability ratios in general could be due to the
fast-food industry, more specifically the pricing. The fast-food industry has moved to price
reducing so the difference from revenue to cost will not generally be high. McDonald's has found
a way to keep their profitability higher than the industry average.
Net Profit Margin
•
2012 – The computed Net Profit Margin: 20%.
•
2015 – The computed Net Profit Margin: 18%.
McDonald's 3 competitors were remarkably altogether 9-10% for 2015 year end net profit
margin. Wendy’s increased while Burger decreased from 2012-2015 while McDonald's stayed
pretty consistent. All three competitors 2015 fiscal year end net profit margin earned $.09 - $.10
on the dollar. McDonald's was nearly double net profit margin for every $1.00 that McDonald's
spent, they earned $.18. McDonald's is planning major growth in 2017 and achieving higher
profits while keeping costs low will help achieve and grow net profit margin (McGrath, 2017).
10. Alternative Strategies
There are a few alternative strategic implementations that McDonalds could consider. Even
though McDonalds is a popular brand, they are by no means perfect and have their share of
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blemishes over the years (more specifically legal issues). One area that may prove beneficial is
the offering of healthier products along with a healthier marketing promotion. McDonalds has
made a modest attempt at providing “healthier” alternatives however, even their “healthier”
alternatives are high in “unhealthy” nutritional contents. Offering a smaller-portion Turkey
burger without greasy bacon and a wheat bun could help along with other healthy alternatives to
present a healthier side to the franchise. Panera is a good example of this by working to achieve
100% clean food and based on their website www.panerabread.com they are trying to achieve
“no artificial preservatives, sweeteners, flavors and no colors from artificial sources”. A healthier
option could attract more millennials that are focused on eating healthier. Higher priced items
(that are appealing) could generate more revenue as long as the costs are not high to create the
product.
Another strategy McDonalds could pursue is eliminating some of their locations especially for
those dissatisfied franchise owners. Stores may have been originated in areas that were once
viable options but have been hit by economic recession and are no longer viable. According to
McIntyre (2015), “falling sales without reducing the number of locations leads to inefficiency at
many stores or restaurants”. New locations in growing areas along with international growth
could help with generating more revenue or at least eliminate stores that are losing revenue on
their own. Even though it may make franchise owners upset, they could also charge more for
service fees and rent.
Lastly, another strategy that may not work in all areas is delivery. McDonald's already does
this in other countries although there are those that say it would not work due to labor cost and
expectations. McDonald's is considering testing this in major markets in the United States and
would prove to be beneficial in areas with neighborhoods nearby. Partnering with a separate
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delivery service may prove to be inefficient.
11. Pro-Forma Financial Statement Analysis
Potential financial benefits of new strategic initiatives can be found on prospective financial
statements for the next three years showing McDonald’s current method along with the proposed
new. These calculations can be found in figure 8.
12. Net Present Value Analysis
McDonald’s in their expansion of building one hundred new franchises overseas will need to
come up with raising two point five million dollars. To do this McDonald’s will of course
have to borrow monies and set up arrangement to pay back these borrowed funds over a four
to six-year period. Debt financing will put them at thirty five percent and the stock financing
will be at sixty five percent. The tax rate is twenty five percent and the interest rate is at forty
percent. New share outstanding will increase slightly as the shares prices increase
significantly. This should allow McDonalds to be able to have needed success in their
expansion. (Net present value calculations can be found in figure 9).
13. Specific Recommended Strategies and Objectives
McDonald’s currently finds itself at a crossroads. While McDonald’s faces stiff
competition from competitors in multiple different segments and demographic groups, they
currently lack the ability to respond in any of those segments with a concise strategy. Thus, to
position McDonald’s for persistent success within its targeted demographics, there are four
explicit strategies that McDonald’s should adapt in order to promote a sustained competitive
advantage. Firstly, McDonald’s should eliminate much of the excess from its menu and
implement a simpler menu that emphasizes quality ingredients. Secondly, launch a new
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customer-service initiative that promotes accountability while placing the consumer first.
Thirdly, attract superior staff members through increased wages. Finally, adapt current
technology that will bring value to the consumer by seamlessly decreasing wait times, increasing
menu visibility, and enabling customers to place orders online for rapid pick-up. These four
strategies represent a “Back to the Basics” approach from which McDonald’s was originally
founded, unequivocally promoting simple structures while making access for the customer as
easy, and pleasant, as possible.
Perhaps the most important component of McDonald’s revitalization will be in
simplifying its massive menu while increasing the quality of ingredients used in its food.
Currently, McDonald’s boasts over 100 items on its regional menus. However, five items of
those 100 currently account for 30 percent of McDonald’s sales. This disparate number,
combined with the outrageous costs associated with outfitting restaurants to produce a multitude
of different foods, has cost McDonald’s much while failing to accomplish meaningful growth for
the organization. To rectify this, McDonald’s must eliminate a large portion of its menu,
trimming the excess and focusing on its top performing menu items. While the investment that
McDonald’s has already made into its kitchens will essentially become a sunk cost, it is a
necessary cost to tolerate because McDonald’s will see significant value added in its simplified
menu, cost savings on ingredients that may not be used, and the training of staff to make such a
diverse menu. McDonald’s must also continue to improve the quality of ingredients used within
its foods. It has already proven that doing so leads to increased sales (Kix, 2017). McDonald’s
may also see increased turnaround time of orders if the staff can focus on a more limited menu,
instead of having to constantly change what is being cooked.
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The second component of McDonald’s revitalization plan lies in adopting a customer
service initiative that emphasizes three specific dynamics – customer experience, order
turnaround time, and accessibility. Customer experience plays an incredibly important role
within service industries. The way employees greet customers, how customers are treated when
they have requests, and how stocked and clean each restaurant is at any given point in time all
contribute to making a seamless initiative. Order turnaround time is another dynamic that effects
customer service, as having to wait long periods to receive an order benefits no one and only
leads to a more frustrating experience. Accessibility, the final dynamic of the initiative, speaks to
how easily a customer cannot only understand the menu, but what ingredients are in each item
and the health facts surrounding their choices.
McDonald’s can accomplish the customer service initiative by implementing the “We’re
Loving It” campaign. This campaign will focus on the three dynamics discussed above,
emphasizing the commitment of staff to new, more customer focused principles. Staff will be
trained in expectations and suggested responses to common customer issues, and will be given
latitude to make sure the customer receives the best service possible. Order turnaround time,
which should already see improvement due to a more simplistic menu, will be emphasized as a
major factor in accomplishing this initiative. The accessibility of customers to McDonald’s
menu, and a renewed commitment to using quality ingredients, will allow for greater
transparency. This transparency can continue to be shown through creative social marketing
campaigns, which highlight the changes that McDonald’s makes (Gorham, L. M., Gibson, C., &
Irlbeck, 2016). Compared to more drastic measures, the expense of these initiatives will be far
outstripped by the potential for not only a more streamlined customer service process and
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turnaround time of meals, but for the positive image rehabilitation that McDonald’s will gain by
emphasizing these dynamics.
The third strategy that McDonald’s must implement is the increasing of wages and
incentives in order to attract better talent for its restaurants. For years, paying low wages has
hampered McDonald’s ability to attract quality talent. This has led to a variety of customer
service issues, and has contributed to the negative connotation that one receives when working at
such an establishment. To combat this, and to show that McDonald’s is committed to the
customer experience, higher wages and an incentive program for employees should be put in
place. While some argue that a $15 minimum wage would be the ultimate scale, this may prove
unduly burdensome to companies unless potentially risky strategies are used (Pollin & Wicks-
Lim, 2016). Instead of a forced minimum wage, an income scale, which can be set by
geographic region to be competitive with surrounding dining facilities, will ensure that quality
workers do not write off McDonald’s before finding employment at other facilities. This can
further be enhanced through an incentive program that rewards employees for such milestones as
turnaround time of orders and cleanliness standards within the restaurant. This benefits
McDonald’s because employees will be more inclined to work towards productivity goals when
there is an incentive in doing so.
The fourth and final strategy that McDonald’s should implement is a focus on technology
within its restaurants. In order to be competitive, and even surpass, competitors McDonald’s
should implement two main sources of technology within its restaurants. These sources include
an optional kiosk system of ordering, and an “On-the-go” mobile application. Both sources of
technology will contain McDonald’s full menu, as well as nutritional facts, recommended menu
items, and even customizable orders for those who want to request special variations of their
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favorite sandwich or side. Both sources will free up front desk space, and allow customers to
place their orders in advance for rapid pickup. This will not only enhance customer service, but
streamline how McDonald’s deals with heavy load times within its restaurant. While there will
be initial development costs, the enhancement of the customer experience will be a powerful
motivator in improving the customer situation.
The timetable for implementation will begin with the menu driven focus. The
implementation of the wage increase and incentive programs will begin in order to stock staff in
advance of the customer service initiative, which will be adopted towards the end of quarter one.
The customer service initiative and related advertising campaigns will begin shortly thereafter
and continue through the end of the year. The technology focus will begin once the menu
reorganization is complete, in order to allow for a graduated rollout of resources.
Potential costs and outlay of capital for this project include the greater wage scale
designated by geographic region, development costs for technology and implementation of
equipment, training for staff, and advertising campaigns to relay this shift to the public. Potential
gains in profit will present in greater turnaround time of orders, menu simplicity, and application
based purchasing.
14. Proposed New Business Model
In order to be successful in the highly competitive fast food industry, McDonald’s must
be willing to adopt a customer centric business model. This model, and the improvements
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proposed above, will allow McDonald’s to be competitive where it has previously lagged behind
the opposition. This customer centric business model starts and ends with the customer. The
menu will undergo a simplification in what is offered, not only to cut the fat out of a bloated
model, but to increase customer satisfaction through greater turnaround time of orders. A new
breed of employee will find employment at McDonald’s through higher wages and incentives, in
order to promote greater customer service. An initiative focused on dynamics such as customer
experience, decreased turnaround time, and accessibility will gain traction thanks to an incentive
program that incentivizes staff to achieve pre-defined goals in these areas. Finally, McDonald’s
will adopt technology that works for the customer, promoting greater clarity of what is on the
menu, and the health facts of those items, while also decreasing wait time at the counter. Rapid
pickup will also be available for customers who wish to place their orders in advance.
Customers should know that they are getting a quality product when they go to McDonald’s. By
adopting these principles, and by making it known to the public through advertising and other
avenues, McDonald’s can regain its place among the upper-echelon of restaurants.
References
Group Case Study One
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Burger King Worldwide, Inc. (2017). (). Fort Mill: Mergent. Retrieved from
http://ezproxy.liberty.edu/login?url=https://search-proquest-
com.ezproxy.liberty.edu/docview/1860785977?accountid=12085
Burger King Holdings Inc (2016). Retrieved from
http://www.nasdaq.com/markets/ipos/company/burger-king-holdings-inc-699836-48688
Gorham, L. M., Gibson, C., & Irlbeck, E. (2016). Making a Case for McDonald's: A Qualitative
Case Study Examining the McDonald's "Our Food Your Questions" Campaign. Journal
Of Applied Communications, 100(4), 17-32. Retrieved from
http://ezproxy.liberty.edu/login?url=http://search.ebscohost.com/login.aspx?
direct=true&db=ehh&AN=120495530&site=ehost-live&scope=site
Kix, P. (2017). MCDONALD'S. Entrepreneur, 45(1), 86. Retrieved from
http://ezproxy.liberty.edu/login?url=http://search.ebscohost.com/login.aspx?
direct=true&db=bth&AN=120565466&site=ehost-live&scope=site
McDonald's. (2017). Our history and timeline. Retrieved
from https://www.mcdonalds.com/us/en-us/about-us/our-history.html
McDonald's: 2014 Year in Review. (December 29, 2014). Retrieved on February 7, 2017
from http://www.forbes.com/sites/greatspeculations/2014/12/29/mcdonalds-2014-year-in-
review/#75854a263e8f
Mcdonald's Corporation. (2017). (). Fort Mill: Mergent. Retrieved from
http://ezproxy.liberty.edu/login?url=https://search-proquest-
com.ezproxy.liberty.edu/docview/1860751909?accountid=12085
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McDonald's beats earnings on surging US sales, China demand. (January 25, 2016). Retrieved on
February 7, 2017 from http://www.cnbc.com/2016/01/25/mcdonalds-reports-fourth-
quarter-2015-earnings.html
McGrath, M. (January 23, 2017). The Most Important Part of McDonald's Q4 Earnings Report Is
What Wasn't There. Retrieved on February 7, 2017 from
http://www.forbes.com/sites/maggiemcgrath/2017/01/23/the-most-important-part-of-
mcdonalds-q4-earnings-report-is-what-wasnt-there/#3ec4d69229a5
NASDAQ. (2016). McDonald's Corporation (MCD). Retrieved from
http://www.nasdaq.com/symbol/mcd/financials?query=income-statement
Pollin, R., & Wicks-Lim, J. (2016). A $15 U.S. Minimum Wage: How the Fast-Food Industry
Could Adjust Without Shedding Jobs. 50(3), 716-744.
doi:10.1080/00213624.2016.1210382
S & P Global Market Intelligence. (2016). MCD. Retrieve from https://www-capitaliq-
com.ezproxy.liberty.edu/CIQDotNet/company.aspx?companyId=139488
Wendy's International, Llc. (2017). (). Fort Mill: Mergent. Retrieved from
http://ezproxy.liberty.edu/login?url=https://search-proquest-
com.ezproxy.liberty.edu/docview/1860751860?accountid=12085
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Appendix A: Tables, Charts and Matrices
Figure 1: EFE Matrix, IFE Matrix, SWOT Bivariate Strategy Matrix – McDonald’s
External Factor Evaluation Matrix (EFE)
Opportunities
Weight
Rating
Weighted
Score
1.
Minimize Menu
0.05
3
0.15
2.
Customer Service initiative
0.01
2
0.02
3.
Increasing Wages
0.06
2
0.12
4.
Technology Commitment
0.05
4
0.20
5.
Quality Ingredients
0.03
2
0.06
6.
Owner Operated Expansions
0.03
3
0.09
7.
Food Delivery (Home)
0.04
3
0.12
8.
Healthier Selections
0.09
4
0.36
9.
Home Deliveries
0.10
4
0.40
10.
Increased Franchisees
0.05
4
0.20
Threats
Weight
Rating
Weighted
Score
1.
Employee Rate of Increased Turnovers
0.06
4
0.24
2.
Quality the Same Across the Board within Franchises
0.08
4
0.32
3.
Fast food Competitors
0.05
4
0.20
4.
Currency Fluctuations for Foreign Markets
0.03
2
0.06
5.
The Change within the lifestyles of their customers
0.04
3
0.12
6.
Lawsuits
0.02
1
0.02
7.
Customer Satisfaction
0.10
4
0.40
8.
Unhealthy Selections
0.05
3
0.15
9.
Customized Customer Service
0.04
2
0.08
10.
Regulations with their Marker
0.02
2
0.04
TOTALS
1.00
3.35
Internal Factor Evaluation Matrix (IFE)
Strengths
Weight
Rating
Weighted
Score
1.
Brand Name
0.05
4
0.20
2.
Market Penetration
0.03
3
0.09
3.
Store Locations
0.05
4
0.20
4.
Business Model
0.04
4
0.16
5.
Franchises
0.03
3
0.09
6.
Advertising
0.07
4
0.28
7.
Innovation
0.02
4
0.08
8.
Financial Stability
0.07
4
0.28
9.
Competitive Pricing
0.06
4
0.24
Group Case Study One
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Weaknesses
Weight Rating
Weighted
Score
TOTALS 1.00 2.69
Lawsuits
Customer Satisfaction
Fast food Competitors
Same Quality Across the Board within the Franchises
1
2
3
4
ST Strategies
Food Delivery
Increased Franchises
Technology commitment
Quality Ingredients
1
2
3
4
WO Strategies
Regulations within The Market
Competitive Pricing
Consumer Lifestyle Change
Currency Fluctuation within The Foreign Market
1
2
3
4
WT Strategies
10.
Largest market share within it's Industry Worldwide
0.10
4
0.40
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
SO Strategies
1
Minimize Menu
2
Customer Service initiative
3
Increasing Wages
4
Technology
Costly Expansions
0.06
1
0.06
Employee Retention
0.07
1
0.07
Menu Selection - Less Fried more Healthier
0.04
2
0.08
Negative Publicity
0.03
1
0.03
Natural Resources such as Organic Products
0.02
2
0.04
Investors Relations
0.02
2
0.04
Other FastFood Competitors
0.06
1
0.06
Unrest within the Foreign Countries
0.05
2
0.10
Congested Menu
0.07
1
0.07
Customer Satisfaction
0.06
2
0.12
Relative
Market
Share
Position
High
Medium
Low
High
+20
iG
(ei
CLL
a
Industry
Sales
Growth
Medium
0 orn
mern
Rate
-
(Percentage)
Low
-20
Group Case Study One
21
Figure 2: BCG Matrix
Group Case Study One
22
Figure 3: Competitive Profile Matrix
Competitive Profile Matrix (CPM)
McDonalds
Burger King
Wendy's
Critical Success Factors
Weight
Rating
Score
Ratin
g
Score
Rating
Score
Market Shares
0.09
4
0.36
3
0.27
3
0.27
Market Penetration
0.10
4
0.40
2
0.20
1
0.10
Innovation
0.04
3
0.12
2
0.08
2
0.08
Store Locations
0.06
4
0.24
2
0.12
1
0.06
R&D
0.05
4
0.20
3
0.15
2
0.10
Employee Dedication
0.06
3
0.18
2
0.12
2
0.12
Financial Profit
0.15
4
0.60
3
0.45
2
0.30
Customer Service
0.12
3
0.36
3
0.36
2
0.24
Brand Name
0.10
4
0.40
3
0.30
2
0.20
Product Quality
0.12
2
0.24
3
0.36
3
0.36
Advertising
0.06
4
0.24
3
0.18
2
0.12
Price Competitiveness
0.05
3
0.15
3
0.15
2
0.10
Totals
1.00
3.49
2.74
2.05
Group Case Study One
23
Figure 4: Competitor’s Ratios
Annual Income Statement (values in 000's)
Period Ending: 12/31/2014 12/31/2015
LIQUIDITY RATIOS CHANGE CHANG
E
Current Ratio
1.52
-0.07
3.27
1.75
Quick Ratio
1.48
-0.07
3.23
1.75
Cash Ratio
PROFITABILITY RATIO
0.76
S
-0.12
2.60
1.84
Gross Margin
0.38
-0.01
0.39
0.01
Operating Margin
0.29
-0.02
0.28
-0.01
Pre-Tax Margin
0.27
-0.02
0.26
-0.01
Profit Margin
0.17
-0.03
0.18
0.01
Pre-Tax ROE
0.57
0.06
0.92
0.35
After Tax ROE
0.37
0.02
0.64
0.27
Period Ending:
LIQUIDITY RATIOS
12/31/2012
12/31/2013
CHANGE
Current Ratio
1.45
1.59
0.14
Quick Ratio
1.41
1.55
0.14
Cash Ratio
0.69
0.88
0.19
Group Case Study One
24
PROFITABILITY RATIOS
Gross Margin
0.39
0.39
0.00
Operating Margin
0.31
0.31
0.00
Pre-Tax Margin
0.29
0.29
0.00
Profit Margin
0.20
0.20
0.00
Pre-Tax ROE
0.53
0.51
-0.02
After Tax ROE
0.36
0.35
-0.01
*Information retrieved from NASDAQ.com
Group Case Study One
25
Figure 5: Balance Sheet
Fiscal year is January -
December
C Assests
2013
2014
2015
Cash and Cash Equivalents
$2,798,700
$2,077,900
$7,685,500
Short-Term Investments
$0
$0
$0
Net Receivables
$1,319,800
$1,214,400
$1,298,700
Inventory
$123,700
$110,000
$100,100
Other Current Assets
$807,900
$783,200
$558,700
Total Current Assets
$5,050,100
$4,185,500
$9,643,000
L -Te A
Long-Term Investments
$1,209,100
$1,004,500
$792,700
Fixed Assests
$25,747,300
$24,557,500
$23,117,600
Goodwill
$2,872,700
$2,735,300
$2,516,300
Intangible Assests
$0
$0
$0
Other Assests
$1,747,100
$1,744,600
$1,869,100
Deferred Asset Charges
$0
$0
$0
Total Assets
$36,626,300
$34,227,400
$37,938,700
C Liabilities
Accounts Payable
$3,170,000
$2,747,900
$2,950,400
Short-Term Debt/Current
$0
$0
$0
Group Case Study One
26
Portion of Long-Term Debt
Other Current Liabilities
$0
$0
$0
Total Current Liabilities $3,170,000 $2,747,900 $295,040
Long-Term Debt
$14,129,800
$14,935,700
$24,122,100
Other Liabilities
$1,669,100
$2,065,900
$2,074,000
Deferred Liability Charges
$1,647,700
$1,624,500
$1,704,300
Misc. Stocks
$0
$0
$0
Minority Interest
$0
$0
$0
Total Liabilities
$20,616,600
$21,374,000
$30,850,800
S Holde E
Common Stocks
$16,600
$16,600
$16,600
Capital Surplus
$5,994,100
$6,239,100
$6,533,400
Retained Earnings
$41,751,200
$43,294,500
$44,594,500
Treasury Stock
-$32,179,800
-$35,177,100
-$41,176,800
Other Equity
427600
-1519700
-2879800
Total Equity
16009700
12853400
7087900
Total Liabilities and Equity
36626300
34227400
37938700
Group Case Study One
27
Figure 6: Income Statement
Fiscal year is January
- December
2013 2014 2015
Net Income
$5,585,900
$4,757,800
$4,529,300
Cash Flows-Operating Activities
Depreciation
Net Income
$1,585,100
$1,644,500
$1,555,700
Adjustments
$141,100
$391,600
$286,200
Changes in Operating Activities
Accounts Receivable
$56,200
$27,000
-$180,600
Changes in Inventories
Other Operating
-$44,400
-$4,900
$44,900
Activities
$0
$0
$0
Liabilities
-$203,200
-$85,700
$303,600
Net Cash Flow-
Operating
$7,120,700
$6,730,300
$6,539,100
Cash Flows-Investing Activities
Capital Expenditures
-$2,824,700
-$2,583,400
-$1,813,900
Investments
Other Investing
$0
$0
$0
Activities
$150,900
$278,500
$393,900
Annual Income Statement
Group Case Study One
28
Cash Flows-Financing Activities
Sales and Purchase of
Stock
-$1,544,500
-$2,963,200
-$5,782,000
Net Borrowings
Other Financing
$535,300.00
$1,502,900.00
$9,755,200.00
Activities
-$11,800
-$12,800
-$58,700
Net Cash Flows-
Financing
Effect of Exchange
-$4,043,000
-$4,618,300
$737,300
Rate
$58,700.00
-$527,900.00
-$246,800.00
Net Cash Flow
$462,600.00
-$720,800.00
$5,607,600.00
Figure Seven: Statement of Cash Flows
Fiscal year is
January - 2013 2014 2015
Group Case Study One
29
December
A I S
Net Income
$5,585,900
$4,757,800
$4,529,300
C F -O A
Depreciation
$1,585,100
$1,644,500
$1,555,700
Net Income
Adjustments
$141,100
$391,600
$286,200
C O A
Accounts Receivable
$56,200
$27,000
-$180,600
Changes in Inventories
-$44,400
-$4,900
$44,900
Other Operating
Activities
$0
$0
$0
Liabilities
-$203,200
-$85,700
$303,600
Net Cash Flow-
Operating
$7,120,700
$6,730,300
$6,539,100
C F -I A
Capital Expenditures
-$2,824,700
-$2,583,400
-$1,813,900
Investments
$0
$0
$0
Other Investing
Activities
$150,900
$278,500
$393,900
C Flows-F A
Sales and Purchase of
Stock
-$1,544,500
-$2,963,200
-$5,782,000
Net Borrowings
$535,300.00
$1,502,900.00
$9,755,200.00
Other Financing
Activities
-$11,800
-$12,800
-$58,700
Net Cash Flows-
Financing
-$4,043,000
-$4,618,300
$737,300
Effect of Exchange Rate
$58,700.00
-$527,900.00
-$246,800.00
Net Cash Flow
$462,600.00
-$720,800.00
$5,607,600.00
Current
New
Current
New
Current
New
Strategies Strategies Strategies
Strategies
Strategies
Strategies
Period
Ending:
12/31/2016
12/31/2016 12/31/2017 12/31/2017
Period
Ending:
12/31/2018
12/31/2018
Current
Assets
Current
Assets
Cash
and
Cash
Equivalents
$9,074,167 $9,285,595 $13,275,456
$13,928,393
Cash
and
Cash
Equivalents
$15,601,663 $17,828,808
Short-Term
Investments
$0 $0 $0 $0
Short-Term
Investments
$0
$0
Net
Receivables
$1,256,533
$1,307,800
$1,298,678 $1,567,921
Net
Receivables
$1,284,615
$1,823,431
Inventory
$87,667
$92,725
$76,922
$83,453
Inventory
$65,050 $76,948
Other
Current
Assets
$467,400 $464,502 $287,300
$369,047
Other
Current
Assets
$166,400 $334,852
Total
Current
Assets
$10,885,767 $11,150,622
$14,938,356
$15,948,813
Total
Current
Assets
$17,117,728 $20,064,039
Oe
So
Group Case Study One
30
Figure 8: Pro-Forma Financial Statements
Group Case Study One
31
Debt Financing
Percent
Stock
Financing
Percent
Must Equal
1.0
0.35
0.65
1.0
Amounted
Needed
Interest Rate
(decimal
form)
$2,500,000
0.45
Tax Rate
(decimal form)
Current
Shares
Outstanding
0.30
150,000
Share Price
New Shares
Outstanding
$154.00
166,234
Figure Nine: NPV Analysis w/EBIT & EPS
Common Stock Financing Debt Financing
Recession
Normal
Boom
Recession
Normal
Boom
EBIT
$7,432,000
$8,749,700
$10,000,000
$7,432,000
$8,749,700
$10,000,000
Interest
0
0
0
1,125,000
1,125,000
1,125,000
Combination Financing (decimal form)
Recession
Normal
Boom
$7,432,000
$8,749,700
$10,000,000
Group Case Study One
32
EBT
7,432,000
8,749,700
10,000,000
6,307,000
7,624,700
8,875,000
Taxes
2,229,600
2,624,910
3,000,000
1,892,100
2,287,410
2,662,500
EAT
5,202,400
6,124,790
7,000,000
4,414,900
5,337,290
6,212,500
# Shares
166,234
166,234
166,234
150,000
150,000
150,000
EPS
31.30
36.84
42.11
29.43
35.58
41.42
65
Percent
Stock
35
Percent
Stock
Recession
Normal
Boom
Recession
Normal
Boom
EBIT
$7,432,000
$8,749,700
$10,000,000
$7,432,000
$8,749,700
$10,000,000
Interest
393,750
393,750
393,750
731,250
731,250
731,250
EBT
7,038,250
8,355,950
9,606,250
6,700,750
8,018,450
9,268,750
Taxes
2,111,475
2,506,785
2,881,875
2,010,225
2,405,535
2,780,625
EAT
4,926,775
5,849,165
6,724,375
4,690,525
5,612,915
6,488,125
# Shares
160,552
160,552
160,552
155,682
155,682
155,682
EPS
30.69
36.43
41.88
30.13
36.05
41.68
