Financial Analysis of the McDonalds Company

Financial Analysis of the McDonalds Company

NYSE Ticker Symbol MCD

McDonald's Corporation, 2111 McDonald's Dr., Oak Brook, IL 60523

Phone: 630-623-3000

Fax: 630-623-5004

Website: http://www.aboutmcdonalds.com

PART 1, COMPANY OVERVIEW:

a. Brief description of the company (one paragraph, briefly summarizing the company’s business)

McDonald’s Corporation, incorporated on December 21, 1964, franchises and operates McDonald’s restaurants in the global restaurant industry. These restaurants serve menu at various price points providing value in 119 countries globally. All restaurants are operated either by the Company or by franchisees, including conventional franchisees under franchise arrangements, and developmental licensees and foreign affiliated markets under license agreements. Under the conventional franchise arrangement, franchisees provide a portion of the capital required by initially investing in the equipment, signs, seating and decor of their restaurant businesses, and by reinvesting in the business over time. The Company owns the land and building or secures long-term leases for both Company-operated and conventional franchised restaurant sites. In certain circumstances, the Company participates in reinvestment for conventional franchised restaurants.

b. Company history (origin, major developments, etc.)

McDonald’s history originates in 1940, when it started out as McDonald’s Bar-B-Q by Dic and Mac McDonald. In 1948 McDonald’s was officially founded serving only nine items, which included a 15-cent hamburger. In 1955, Ray Kroch opens his first McDonald’s on April 15.   This was the first franchised McDonald’s. It was also the first building to include the Golden Arches.   In 1955, the company celebrated it first public stock offering and the rest is history (McDonald’s, 2011). Also, McDonald's has been an Olympic sponsor since 1976 (Reuters, 2011).

c. Organization (describe how the company is structured)

Key Executives

Mr. Donald Thompson, 51

Chief Exec. Officer, Pres, Director and Chairman of Exec. Committee

Mr. Peter J. Bensen, 52

Chief Financial Officer and Corp. Exec. VP

Mr. Timothy J. Fenton, 57

Chief Operating Officer

Ms. Gloria Santona, Esq., 64

Corp. Exec. VP, Gen. Counsel and Sec.

Mr. Douglas M. Goare, 61

Pres of McDonald's Europe

d. Main products and services (describe what the company sells; how it makes money)

The company’s restaurants offer various food items, soft drinks, coffee, and other beverages, as well as breakfast menus. Its menu includes hamburgers and cheeseburgers, Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, several chicken sandwiches, Chicken McNuggets, Chicken Selects, french fries, premium salads, shakes, McFlurry desserts, sundaes, soft serve cones, pies, cookies, soft drinks, coffee and other beverages. In addition, the restaurants sell a variety of other products during limited-time promotions. Its restaurants in the U.S. and many international markets offer a full or limited breakfast menu. Breakfast offerings may include Egg McMuffin, Sausage McMuffin with Egg, McGriddles, biscuit and bagel sandwiches and hotcakes.

e. Geographic area of operations (describe where the company sells its products)

McDonalds Corporation franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. As of December 31, 2013, it operated 35,429 restaurants, including 28,691 franchised and 6,738 company-operated restaurants.

f. Recent developments (list recent major news stories, if any)

· McDonald’s Tries Cheaper Mighty Wings, By: Daniel Kline, The Motley Fool

· Starbucks, McDonald’s, and Yum!Brands: The Breakfast War is Getting Hotter, By: Andres Cardenal, The Motley Fool

· McDonald’s Announces Official Opening of First Restaurant in Vietnam, Marketwired

PART 2, FINANCIAL OVERVIEW: Dollars in Millions

a. Sales and Income Record:

	Fiscal Years
	2008	2009	2010	2011	2012
Sales	$16,561.00	$15,459.00	$16,233.00	$18,293.00	$18,603.00
Percent change in sales each year		93%	105%	113%	102%
Net Income	$4,313.00	$4,551.00	$4,946.00	$5,503.00	$5,465.00
Percent change in net income each year		106%	109%	111%	99%

COMMENTS: McDonald’s has continued a slight upward trend in net income between 2009 - 2012. Even though there was a decline in sales during 2009, net income has continued to climb at a steady rate.

b. Expense Distribution:

	FY2012
Major Expenses:
Cost of Revenue	16,750,700
Research Development
Selling General and Administrative	2,211,700
Non Recurring
Others
Interest Expense
Income Tax Expense	2,614,200

COMMENTS: McDonald’s largest expense is its Cost of Goods Sold or as it refers to on its Income statement Cost of Revenues, which makes up about 78% of the restaurant’s expenses. This is normal for a company of McDonalds’ size and global presence.

c. Assets Distribution:

	Year-end FY 2012
Assets:
Cash	2,336,100
Accounts receivable	1,375,300
Inventory	121,700
Property Plant and Equipment	24,677,200
Other Assets	1,602,700

COMMENTS: Property Plant and Equipment is McDonalds largest assets comprised of about 82%, while Inventory does not even make up 1%. McDonalds operates over 32,000 restaurants globally. McDonalds also has a lot of on-hand cash available so it will be easy for McDonalds to invest further in the company without having to finance operations or it could easily increase its dividend.

c. Capital Structure:

	Year-end FY 2012
Capital Structure:
Current Liabilities	3,403,100
Long-term	13,632,500
Other Liabilities	1,526,200
Preferred Stock (if any)
Common Equity	16,600

COMMENTS: Long-Term debt is the largest share of McDonald’s capital structure pie at 74%. McDonalds currents liabilities of 18% proves that has no problems with paying it’s short-term debt.

PART 3, RATIO ANALYSIS:

(1) LIQUIDITY:

FY 2011 FY 2012

Current Ratio:

McDonalds ____ ____

Wendy’s ____ ____

Quick Ratio:

McDonalds ____ ____

Wendy’s ____ ____

Comments On McDonalds Liquidity:

Be sure to include comments! The numbers are meaningless by themselves. Comment

on what you see. What story do the numbers tell?

(2) ASSET MANAGEMENT

FY 2011 FY 2012

Total Asset Turnover:

McDonalds ____ ____

Wendy’s ____ ____

Average Collection Period:

McDonalds ____ ____

Wendy’s ____ ____

Comments On McDonalds Asset Management:

(3) DEBT MANAGEMENT:

FY 2011 FY 2012

Total Debt to Total Assets:

McDonalds ____ ____

Wendy’s ____ ____

Times Interest Earned:

McDonalds ____ ____

Wendy’s ____ ____

Comments On McDonalds Debt Management:

(4) PROFITABILITY:

FY 2011 FY 2012

Net profit Margin:

McDonalds ____ ____

Wendy’s ____ ____

Return on Assets:

McDonalds ____ ____

Wendy’s ____ ____

Return on Equity:

McDonalds ____ ____

Wendy’s ____ ____

Modified Du Pont Equation, FY 2012:

McDonalds Wendy’s

Net Profit Margin ____ ____

Total Asset Turnover ____ ____

Equity Multiplier ____ ____

Comments On McDonalds Profitability:

(5) MARKET VALUE RATIOS:

FY 2011 FY 2012

PE Ratio:

McDonalds ____ ____

Wendy’s ____ ____

Market to Book Ratio:

McDonalds ____ ____

Wendy’s ____ ____

Comments On McDonalds Market Value Ratios:

PART 4, CONCLUSIONS AND RECOMMENDATIONS

In the course of this analysis, I have determined that McDonald’s clearly has more financial strengths than weaknesses. During 2009 to 2009 there was significant improvements on almost all financial fronts. McDonalds has continued a slight upward trend in sales and net income for the past 5 years. Even though there was a 3 percent decline in sales during 2009, net income has continued to climb at a steady rate. Although there was a slight decrease in Net Profit margin in 2010, McDonald’s when compared to it closest competitor Burger King more than double Burger Kings’ profit margin. This state holds true when comparing McDonald’s to Burger King in every profitability category. Overall they have a stable balance sheet and if needed could meet its obligations without a problem. To continue to remain competitive and distance itself further from its rivals, McDonald’s has started creating a line of healthy food. In implementing a strong advertising and marketing campaign to inform consumers about the new healthy line of food available, McDonald’s will be able to draw in sales form the health conscience customers in its market. As a result its strong financial standing, competitive pricing and ad campaign, McDonald’s is in a financial situated to withstand this recession we are currently in and has position itself for more sells and profits in the future.

‑ Summarize your analysis. Review your comments in the financial analysis section and provide your assessment of the overall status of the firm. Include any recommendations you think are appropriate.

‑ List any other recommendations you have for the firm in view of your analysis.

* End of report Outline *