Financial Analysis of McDonalds Company

PART 1, COMPANY OVERVIEWa. Mc turn inalds is an American tumultuous feed compass that sells a variety of fast nutrition alternatives, but most notably has earned its reputation and success for the hamburger. It is the largest fast victuals cooking stove in the world, with globally recognized golden arches symbolizing a reliable meal can be had in everywhere 119 countries. McDonalds has holdd to progress their placard to reflect the desire/demands of their customers. The authentic CEO of McDonalds is Mr. Don Thompson. b. McDonalds was started in the 1940s as a BBQ restaurant have and operated by Richard and Maurice McDonalds in California, U.S.A.The McDonalds claim was not established until 1955, when man by the name of Ray Kroc opened the ninth McDonalds restaurant in Des Plaines, Illinois. By 1961, McDonalds filed trademark for the political party name and drive-thru service. Ray Kroc eventually forced the McDonalds brothers out of the concern and successfully sprea d the friendship throughout the world. Today, McDonalds is an international shrink of globalization. c. McDonalds invests in properties, operates restaurants, and is a franchiser of the McDonalds arrange, in order to brace bullion. McDonalds operates differently than most franchise companies. Most franchised companies make their money by claiming a percentage of the income make at each chain however, often times McDonalds Corporation will purchase the blank space the franchise is on and charge rent.d. Arguably, the main thing McDonalds sells is consent and expectations. This is to say, when you order from McDonalds you know what you will get every single(a) time no surprises. McDonalds makes money doing this by selling the food for significantly morethan what they purchased it for. McDonalds likewise makes money by move in the strategy discussed above spend in properties and charging franchise owners rent, franchise markups of 40%, operating restaurants, etc. e. McDonalds has over 33,000 locations in over 119 countries across the globe to include places like Israel, Brazil, Scotland, Russia, the U.S., India, and China. Within each of those countries McDonalds can be found in a variety of places in a variety of forms such as, coffee stands in Paris, drive-thru only restaurants in Germany, airport vendors, or even connected to gas stations.f. In young years McDonalds has taken criticism on the unhealthy food choices on their menu, so a slap-up deal to where at some restaurants they have listed the totality caloric intake per meal. That said, McDonalds was the official food sponsor of the 2012 spend Olympics in London, England, where they built their largest restaurant to date to support the massive crowds.PART 2, financial OVERVIEWa. Sales and Income Record- Fiscal Years -2007 2008 2009 2010 2011 Sales 22.79 23.52 22.74 24.07 27.01 per centum depart in Sales Each Year3% -3% 6% 12% Net Income 2.34 4.31 4.55 4.95 5.5 Percent Change in Net Income Each Year84% 6% 9% 11%GRAPH OF SALES & NET INCOME, FY 2007 2011COMMENTS Aside from 2009, the keep come with has seen growth in both sales and net income every year. The decrease in sales for 2009 could possibly be a result of the economic times, where many of McDonalds customers may have reduced their spending and fetch more unprogressive with their expenses. The growth percentages since 2010 argon increasing, which indicates a positive trend in the caller-out moving forward. It would be unrealistic to assume that the company can continue doubling its growth percentages, but a continued growth of 12% to 15% is possible.b. Expense DistributionFY 2011 Major ExpensesCOGS 16.3 SG&A 2.2 Interest 0.49 Taxes 2.5PIE chart OF EXPENSES, FY 2011COMMENTS As depicted in the chart, the companies largest expense is Cost of Goods Sold (COGS). In order to increase their profit margin, McDonalds must continue to tense and find ways to reduce COGS. This is because many of the other expenses are ofttimes harder to influence. Selling General and Administrative (SG&A) expenses have most likely already been trimmed to the minimum over the companys life, taxes are call for by the Government, and concern expense makes up only a humble portion of expenses. The company may need to do a cost-benefit synopsis to determine what may be done to reduce COGS. oneness mentation may to better vertically integrate the company, or to remove menu items which are unpopular and/or seasonal.c. summations DistributionYear-end FY 2011 AssetsCash 2.3 Accounts receivable 1.3 Inventory 0.12 Fixed Assets (PP&E) 22.8 Other Assets 1.67PIE CHART OF ASSETS, Year-end FY 2011COMMENTS As depicted in the chart, the companies assets are largely fixed. This comes as no surprise since the company consists of over 33,000 restaurant locations worldwide. The percentage of fixed assets as compared to current assets does think though that the company is not liquid, which means it cannot quickly convert its assets to cash. The do one inventory which actually makes up just 0.4% of the asset distribution is frequent due to the fact that the company is a restaurant chain, and much of the produce has a quick shelf life.c. cap Structure Year-end FY 2011 Capital StructureCurrent Liabilities 3.5 Long-term & Other Liabilities 13.73 Common Equity 14.4CAPITAL anatomical structure PIE CHART, Year-end FY 2011COMMENTS As depicted in the chart, the companies capital structure is made up largely of common equity and long-term liabilities. The company has been extremely successful, and has gained equity over the years as it became the worlds largest chain of hamburger fast food restaurants. Additionally, in order to continue their growth, the company has expanded its locations, which required long-term debt financing. Because of these characteristics,the percentages of each of these categories are expected. Furthermore, the company has humbled current liabilities, which is normal for yearl y operations in this sector.PART 3, RATIO outline(1) LIQUIDITYComments On McDonalds LiquidityMcDonalds has a good current ratio. It is above 1, which means that it has enough current assets to cover current liabilities. Also, since the number is not too high, we know that the company is utilizing its assets efficiently. The quick ratio is also good because it is above 1, meaning McDonalds does not rely on their inventory. Comparing the numbers to Wendys, McDonalds has room for improvement.(2) ASSET MANAGEMENTComments On McDonalds Asset ManagementMcDonalds has great Total Asset Turnover when compared with Wendys. They are making over $0.75 for every dollar of assets. Also, their Average Collection goal is very good, taking on average 18 days to cop on receivables.(3) DEBT MANAGEMENTComments On McDonalds Debt Management Both companies debt ratios are similar, and are not alarming for the pains. However, McDonalds Times Interest Earned is much higher than Wendys. This shows possibl y lenders that McDonalds can easily meet their interest owed (17x).(4) PROFITABILITYComments On McDonalds ProfitabilityFor the industry, McDonalds has good profitability. Wendys seems to be struggle in this area, and it may be best to compare the company against another(prenominal) peer to determine how they are doing.(5) MARKET VALUE RATIOSComments On McDonalds merchandise Value RatiosMcDonalds market value is good compared to both industry numbers, as well as against Wendys market value ratios. McDonalds ratios prove the company is economically strong. Part 4, Summary and ConclusionThe McDonalds caller-up is continuing to grow, both physically and monetarily, as seen in the increase in locations and sales per year. This is a good sign, especially during the current economic times. The company also has standard asset, expense, and capital distribution for companies within the fast food industry. This is good because there are no glaring issues that would inhibit investing in the company. Additionally, the company has great ratios when compared with The Wendys guild, as well as the rest of the fast food industry. One can fully realize how well the McDonalds company is doing in comparison to the industry.Looking forward, the McDonalds Company can try to get better by finding efficiencies where possible. One way the company could do this is by reducing its Cost of Goods Sold. through and through eliminating some specialty items, this may be possible. Also, the company may indirect request to look at a way to increase their return on assets and equity as any increase, large or small, will constantly help a company. Again, the company is doing extremely well already, but great companies should always continuously look for efficiencies and improvements in these areas.Overall, the McDonalds Company has postured itself to become a large and extremely successful company within the fast food industry. It has grown from a small upstart in the 1940s, to a symbol o f globalization todaybecause of the multiplicity of restaurant locations around the world. I believe The McDonalds Company is a great investment fortune as it seems to continually improve, develop, and grow to serve its consumers around the world.