The Financial Analysis Of Mcdonalds

Ray Kroc gained the rights of McDonalds restaurant in 1954. This restaurant was based in California, USA. After being unsuccessful at Des Plaines restaurant Ray Kroc achieved a multitude of success in McDonald’s after buying it out from McDonald brothers. McDonald’s was made public in the year 1965 via the stock exchange. McDonald’s was introduced in the stock exchange with 100 shares totaling at 2250 USD. Their success brought them up to 4.7 million stocks as of today. McDonalds have opened around 33000 restaurants worldwide. The main focus of their restaurants is towards franchising which has brought them revenues in terms of sales as well as renting. Currently 80% of McDonalds are franchises around the world with franchising cost around 45000 USD per license. They have succeeded to expand their company in more than 100 countries around the world.

2.1 Current Situation

McDonalds have worked hard throughout years to attain a respectable position amongst the world fast food chains. They have managed to perform better in the face of sustained pressure. This has helped them to achieve the top position amongst the world’s fast food companies.

McDonald’s current situation is very stable. After going through the introductory passage it would be hard to imagine otherwise. With a huge number of restaurants all around the world it can be safely said that McDonalds is doing very well. This was not the case in the year 2002 when McDonalds faced their first overall loss after over 35 years in business. Being a strong company they did not bend in face of problems rather they planned a strategy to get out of this dilemma by electing a new CEO. Cantalupo, the new CEO, focused on the problem and introduced a new strategy known as the ‘plan to win’ strategy. Under his guidance the company achieved customer satisfaction and improved operating of their current franchises as well as standardizing the future franchising. This strategy raised standards and helped McDonalds to achieve a share price of around 80 thousand dollars in the year 2010. The board of directors made this strategy as one of their core plans because of it doing so well. Investors now take McDonalds as a safe place and put their money in McDonalds shares considering that McDonalds will not see another recession if they continue acting on their policies. This can be seen in the revenues of McDonalds. Their revenues have increased from 20,895 million dollars in 2006 to 24,075 million dollars in 2010 and are still increasing.

Their continuous success is a result of their introducing new products and even new product lines as they have done by introducing McCafe drink lines containing different types of coffees and teas. This line of products has taken McDonalds in cafeteria market and is rivaling Starbucks in USA. This has resulted for them to have a stable place in the market and in the stocks as well.

2.2 Business Planning and Strategy

In McDonald’s there is a strategy named “Plan to Win” since 2003. This plan to win in the industry exist till now and it forced McDonald’s to have 32 months of global comparative positive sales which is the longest strip for the last 25 years. To say more, company has had a growth which in general lies above the industry average growth.

To get better understanding about the current strategy of the company, let take a look what is the “Plan to Win”? It is nothing else except 5P’s that are behind the Plan to Win, it includes: People, Place, Product, Price, and Promotion.

The 5P’s are trying to perceive every thinkable angle of the company, and have ways to improve everything, from refurbishing old shops, to maintenance Wi-Fi for customers, setting the right mood with music and creating deli menus to cope with the bad publicity.

Promotion

Products

– “I’m loving it” worldwide campaign

– Billboards, internet, TV, all advertising in general

– Broaden the selections

– McDonald’s Food Studios

– Superior supplier practices

– High product standards

– McCafe

– Examples: Rice burger, fruit and walnut salad

Price

– High quality food at a reasonable price

– Value menus

– Premium selections

Place

People

– Refurbishing stores

– New music

– Wi-fi

– Flatscreens

– Developed training and hospitality programs to teach our people the skills they need to deliver great service

– Computer based training

-Restaurant Operations Improvement Process (ROIP)

Their main efforts are in a direction of maintenance of their unique firm power, and creation of the additional added cost through experience to keep and develop their shares in the American market.

Company’s newest leading addition of industrial line is the McCafe. The McCafe have a target audience of those who would like something else than regular soft drinks, or probably only wants some coffee.

Using this new strategy and an industrial line McDonald’s tries to seize shares of the market in the industry of coffee industry, which mainly operates Starbucks. It is courageous strategy, where they have an experience minimum, but however it is strategy which is supported by a considerable quantity of their forces. They already have global network of suppliers and one of the most influential brands in the world.” Their marketing has focused on two separate things: first, coping with the effects of the obesity through marketing and a new healthier product category and second, increasing brand awareness to maintain and develop market shares.

While supervising the result (outcome) of McDonald’s has carried out strategy the last years, then the financial data speaks in own language. Development of the incomes which are above development of the market means that they increase the shares in the market. When supervising of their edges of total profit, then since performance of “Plan to Win” has increased edge more than forty percent. It shows that McDonalds till now have correct forces and strategy to outmanoeuvre any problems of fatness.

McDonald’s should study their basic products in the future. As changing requirements and instructions from clients and the governments appear, then at McDonald’s there would be a big advantage of being preventive on these questions. Now they were some of the slowest in the industry to get rid of their trans-fat to make French fries which sends a bad signal on not caring about their clients. On all questions of public health services they, apparently, have very jet manner, still precisely knowing what to make with a problem. If they have to change and expand the research of these areas, the pure size and resources could give easily to them the big push up in CSR competencies and the general image in comparison with their competitors. But as it now, their research – some kind of weakness as they concentrate more on research in decorating than in full healthy meal. It isn’t intended these that they should change the basic products as a cheeseburger, big Mac and French fries, but rather placing some resources in creation of the basic of more healthy products. Thus, they also would deal with some of their weaknesses and would construct protection against future threats.

2.3 Performance Analysis

Financial data can be used to analyse the performance of a company. In this manner, McDonald’s performance can be analysed through their balance sheet over the period of three years. Different ratios are used in this analysis and these ratios are then used to compare the performance of McDonalds over time with regards to standards.

All companies are bound by law to submit their financial statements at the end of each year. This helps analysts to observe the cause and effect relationships in the financial data provided by the company. Following is detailed analysis of McDonalds Corporation with help of their balance sheet. This data has been taken from the financial statement McDonald’s submitted on their website.

Balance sheet

Period Ending Dec 31, 2010 Dec 31, 2009 Dec 31, 2008

Assets

Current Assets

Cash And Cash Equivalents 2,387,000 1,796,000 2,063,400

Short Term Investments – – –

Net Receivables 1,179,100 1,060,400 931,200

Inventory 109,900 106,200 111,500

Other Current Assets 692,500 453,700 411,500

Total Current Assets 4,368,500 3,416,300 3,517,600

Long Term Investments 1,335,300 1,212,700 1,222,300

Property Plant and Equipment 22,060,600 21,531,500 20,254,500

Goodwill 2,586,100 2,425,200 2,237,400

Intangible Assets – – –

Accumulated Amortization – – –

Other Assets 1,624,700 1,639,200 1,229,700

Deferred Long Term Asset Charges – – –

Total Assets 31,975,200 30,224,900 28,461,500

Liabilities

Current Liabilities

Accounts Payable 2,916,400 2,970,600 2,506,100

Short/Current Long Term Debt 8,300 18,100 31,800

Other Current Liabilities – – –

Total Current Liabilities 2,924,700 2,988,700 2,537,900

Long Term Debt 11,497,000 10,560,300 10,186,000

Other Liabilities 1,586,900 1,363,100 1,410,100

Deferred Long Term Liability Charges 1,332,400 1,278,900 944,900

Minority Interest – – –

Negative Goodwill – – –

Total Liabilities 17,341,000 16,191,000 15,078,900

Stockholders’ Equity

Misc Stocks Options Warrants – – –

Redeemable Preferred Stock – – –

Preferred Stock – – –

Common Stock 16,600 16,600 16,600

Retained Earnings 33,811,700 31,270,800 28,953,900

Treasury Stock (25,143,400) (22,854,800) (20,289,400)

Capital Surplus 5,196,400 4,853,900 4,600,200

Other Stockholder Equity 752,900 747,400 101,300

Total Stockholder Equity 14,634,200 14,033,900 13,382,600

Net Tangible Assets 12,048,100 11,608,700 11,145,200

Currency in USD

2.4 Recommendations

Strategic options:

Reduction of employee training spending (lowering employee turnover);

Taking advantage of organic food industry popularity (develop new products for new segments);

Advantage of human health problems (improvement of products).

Reduction of employee training spending (lowering employee turnover).

In order to reduce of employee training spending and to lower turnover, we would like to suggest:

To give the job just for highly motivated people. It means, that they are going to be loyal and not to leave job so fast;

To train new employees using ”Big Brother” principle. New employees would be trained by employees, who are working longer. In this way, company reduces training spending, new employees are trained by the people, who are working inside the company and do the same things every day.

To motivate employees and always take care about their expectations. It can be money premiums for good working in the end of the month (or year), some employees parties, ”Employee of the week (month)” competition and etc.; also employer should take a look of what employee is expected from employer and try to solve that, ex. Maybe employee is not expected to get premium every month, but for good and loyal working he would like that the company would pay his child studies fee after 5 years.

Taking advantage of organic food industry popularity (develop new products for new segments); McDonald’s is not that company, who suggest the most organic food, so they can try:

To make a line of organic food in their menu and take a look what is more popular and healthy for their customers. If it is going more popular than usual menu food, it is more worth to make all food in organic way, even it is more expensive. First of all, people like what is natural, and then they are interested in the price.

To be in a partnership with scientists and doctors in order to take care of their customers heath. Everybody knows that organic food makes people feel better and healthier; also it affects nature in a good way. McDonald’s declares that ”everything is for customer”, so it must take an advantage of organic food popularity and ”make” their customers to live healthier and in more natural way.

To make big advertisement companies declaring organic food pluses and make it more popular in such way. Many people loves McDonald’s food, so it has an authority and can show good example of necessity of organic food in people life and compare how organic and usual McDonald’s food effect customers’ health and all the nature about them.

Advantage of human health problems (improvement of products)

McDonald’s is big food supplying company, and all of us know, how food affects our health. It is one of the main factors, what built our body and strength our brains. Knowing that, McDonald’s should:

Suggest just high quality, improved products, which is full of vitamins and minerals. So, it means that the company must improve their products, all the food must be certificated and fit for all healthy food standards.

Be in a contact with suppliers, who supply products for McDonald’s food and always check if the products is natural, high standard and healthy for all of age customers.

Contact with doctors, scientist and improve their products to fit for all of age customers, even they have some problems with their stomach. It means to make measures and find what is the best for all possible customers.

2.5 Conclusions

The financial analysis of McDonald’s says that the recovery of McDonald’s after the global crises seems to be surprisingly fast and the sales growth rate continues to increase. It tries to improve customer metrics by which it can follow and decide what are the changes in the customers’ needs and wants, how they can satisfy these issues. The most important thing is to think globally but act locally.

The later stage of the second part proposes company’s current strategy. McDonald’s has a specific “Plan to win” current strategy since 2003. These are 5P’s that are behind the Plan to Win, and it includes: People, Place, Product, Price, and Promotion. As changing requirements and instructions from clients and the government, McDonald’s should study their basic products in the future.