Financial Statement Research PowerPoint Presentation Assignment Financial Statement Analysis The McDonald’s Company AMM112.7006 Spring 2009 II Prof, Angela Wu by Xi Chen Wen Guang Li July 30, 2009
Company Summary McDonald's Corporation is the world's largest chain of fast-food restaurants, primarily selling hamburgers, chicken, french fries, breakfasts and soft drinks. More recently, it also offers salads, fruit, snack wraps, and carrot sticks. The business began in 1940, with a restaurant opened by siblings Dick and Mac McDonald in San Bernardino, California. Their introduction of the "Speedee Service System" in 1948 established the principles of the modern fast-food restaurant. The present corporation dates its founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois on April 15, 1955, the ninth McDonald's restaurant overall. Kroc later purchased the McDonald brothers' equity in the company and led its worldwide expansion. With the successful expansion of McDonald's into many international markets, the company has become a symbol of globalization and the spread of the American way of life. Its prominence has also made it a frequent subject of public debates about obesity, corporate ethics and consumer responsibility.
History & Overview • 1950’s McDonalds Corporation was created. Followed by the opening of their 100th restaurant in Chicago. • By 1970’s there are a McDonalds in every state • 1980’s Followed its founder’s death, the McDonald Children’s Charity was created in memory of the founder. • As of that point, McDonalds have restaurants in more then 40 countries serving 20 million people a day. • Today McDonalds are practically in every major cities and countries around the world
Stock Performance - Chart - McDonald’s - Nasdaq - Dow Jones - S&P 500
Income Statement All amounts in Millions
Growth analysis (Horizontal analysis) • Among 2008 : Gross Profit decreased 33.4% , Operating Income Increased 68.3%, Net Income increased 80.1%. • Among 2007: Gross Profit increased 85.7%, Operating Income decreased 15.3%, Net Income decreased 32.4%. • Overall, in 2008, even though gross profit decreases, operating income and net income were up substantially, and quality’s profit trend appears favorable; in 2007, even though gross profit increases, operating income and net income were down substantially, and quality’s profit appears unfavorable.
Margin Analysis (Vertical analysis) • Gross Margin increased 24.5% (56.9%-32.4%) from 2006 to 2007, but declined 20.2% (36.7%-56.9%) from 2007 to 2008. • Operating Margin declined 4.1% (16.5%-20.6%) from 2006 to 2007, but increased 10.4% (26.9%-16.5%) from 2007 to 2008. • Net Margin declined 5.9% (10.5%-16.4%) from 2006 to 2007, but increased 7.8% (18.3%-10.5%) from 2007 to 2008. • Overall, even though gross margin increased from 2006 to 2007 and decreased from 2007 to 2008, operating margin and net margin decreased from 2006 to 2007 and increased from 2007 to 2008. Quality appeared to have improved from 2007 to 2008.
Balance Sheet All amounts in millions
Ratio Analysis – Liquidity Ratios • From year 2006 to 2007, current ratio decreased, but from year 2007 to 2008 current ratio increased. Therefore, quality appeared to be fairly liquid. • From year 2006 to 2007, Quick ratio decreased. Quick ratio seemed inadequate. From year 2007 to 2008, quick ratio increased and become more favorable. • From year 2007 to 2008, receivable turnover increased a little, overall, it maintained high receivables turnover rate. • From year 2007 to 2008, inventory turnover increased. It kept a very high inventory turnover rate . Generally, the faster the inventory turnover rate is, the less cash a company has tied up in inventory and the less the chance of inventory obsolescence.
Ratio Analysis – Profitability and Solvency Ratios • From year 2006 to 2007, profit margin decreased, from year 2007 to 2008, profit margin increased. • From year 2007 to 2008, Return on common stockholder’ equity increased. Therefore, more dollars of net income the company earned for each dollar invested by the owners. • From year 2006 to 2007, debt to total asset ratio increased, from year 2007 to 2008, debt to total asset ratio increased. Too higher debt to total ratio, the greater the risk that the company may be unable to meet its maturing obligations. Therefore, if the debt to total ratio keep increasing, it’s not good.
Statement of Cash Flows – Operating Activities • Cash inflow for operating activities increased 10.97% from year 2006 to 2007, and increased 21.35% from year 2007 to 2008. • The increase from year 2007 to 2008 was mainly due to: • Adjustments to net income increase $1,892 millions greater than the net income, which decreased $1,149 millions. • The increase from year 2007 to 2008 was mainly due to: • Net income increased $1,918 millions greater than the adjustments to net income which reduced $1,153 millions. • Liabilities increased $147 millions
Statement of Cash Flows – Investing Activities • Cash outflow for investing activities decreased 9.94% from year 2006 to 2007, and increased 41.30% from year 2007 to 2008. • The decrease from year 2006 to 2007 was mainly related to: • Other cash flows from investing activities, cash inflow increased $328 millions greater than capital expenditures outflow which increased $205 millions. • The increase from year 2007 to 2008 was mainly related to: • Capital expenditures outflow increased $189 millions. • Other cash flows from investing activities outflow increase $515 millions.
Statement of Cash Flows – Financing Activities • Cash outflow for financing activities decreased 23.04% from year 2006 to 2007 and increased 2.98% from year 2007 to 2008. • The decrease from year 2006 to 2007 was mainly related to: • Net Borrowings inflow increased $2,838 millions, greater than dividends paid and sale purchase of stock outflow that increased $1,370 millions. • The increase from year 2007 to 2008 was mainly related to: • Sale purchase of stock outflow increased $566 millions, greater than net borrowings inflow which increased $473 millions. • Dividends paid outflow increased $57 millions.
Top Competitors • Burger king • YUM (KFC, Taco Bell, Pizza Hut) • Wendy’s • The most successful companies in the fast food industry are McDonald's, Burger King and Yum (Pizza Hut, Taco Bell, KFC). Together these huge conglomerates dominate the industry, employing 3.7 million people worldwide; operating a combined total of 60,000 stores.
MCD Stock Vs. Major Competitors - McDonald’s - Burger king -YUM Brands - Wendy’s
Back to Back Comparison - McDonald’s - Burger king -YUM Brands - Wendy’s - Industry
Summary After this financial statement analysis, we learn McDonald’s financial situation deeply. • McDonalds is the biggest fast-food franchise in the industry. • Its also the most profitable. • Though the company’s profits declined in 2007, but raised in 2008. most probably due to the down fall of economy that lead more consumer to buy cheaper food. • It’s a good company to invest in.