McDonald is one of the well-known fast food corporation in the world. The company is recognized to be worldwide by the focus of their golden arches. This report will focus on the financial analysis of McDonalds bearing in mind that each McDonald restaurant is operating by the main company or franchise. The financial analysis of this company involves ratio analysis, SWOT analysis and environmental analysis. Through ratio analysis, it will be possible to understand the overall performance of MacDonald and use the result for different decision making. The primary objective of writing this report is to examine current financial condition of this company mainly as a global company and also to ensure that an understanding of its decline in sales revenue is understood. This report is therefore mainly focused on general analysis of the current situation of MacDonald and ensures there is a detailed understanding of both financial and non financial performance of this company.
1.2 Company Overview
Mc Donald corporation started and was opened as a bar b-queue restaurant in the year 1940 in California, an area known as Bernardino. During this time, the drive brought out a variety of food. Historically, in 1948, Mac and Dick McDonald turned the old restaurant to a room that could be recognized as a self-serving drive. The menu was cut down to nine items with the start of the menu being the fifteen cent hamburger. Additionally; the popular French fries rose in 1949 with Ray Kroc creating the first franchise in Des Plaines during 1955 (Rui, 2016).McDonald in its financial performance has demonstrated acontinuous growth which has been moving year after year.During 1959, the company began the one hundred restaurants and in the year 1963; thecompany openedup one of the 500th restaurants which are opened in Toledo, OH and the period of 1967, the company opened chains globally in areas such as Puerto Rico and Canada. Currently, McDonald has eighty percent of franchises in different parts of the World. This company operates in more than 100 countries a cross the globe. MacDonald generates different revenues annually. This company has more than 400000 wortkers working in different positions including sales executives and supervisors. MacDonald has 36000 outlets and usually it uses global menu to ensure that it meets the global standards.
1.3 Current Financial Condition of MacDonald Plc
McDonald's have worked tiresomely hard throughout the years so as to attain one of the respective positions amongst the world's fast food chains; this has hence made them record a better performance in the face of sustained pressure making them achieve the top position in the world of fast food. Currently, the company is operating at a stable position as compared to the year two thousand and two where the company went through one of the difficult financial crisis and general loss for over thirty-five years in business. Being that Macdonald is one of the stronger company , the corporation did experience any bend in face of the challenges that they were going through,but rather they were able to come up with a strategy that was able to move out the challenge by coming up with a new CEO, Cantalupo who focused on the challenge and came up with a new strategy which was identified us plan to win strategy. Through proper guidance that the company adopted, it achieved one of the greatest customer satisfactions making an improvement on their current franchise as well as having to standardize the company's future franchising (Rui, 2016). Through this strategy, standards were raised helping MacDonalds to produce eighty thousand dollars in 2010. One of the financial achievement that has been experienced in the past is as a result of their brand nature of continuously bringing new products to the market and new product line as done in the past through the introduction of McCafe drink lines which contains various types of teas and coffee . Through this line of the products has introduced McDonald's to compete in the cafeteria market with the rivaling Starbucks which is operating in the United States (Pur,2015).
In 2016, McDonalds worked so hard to lay the foundation for achieving his future goals. The company has focused on bringingchanges in theirtechnology, restaurants to deliver one of the enhanced McDonalds experiences for customers who are operating in the world. The company has been working in the direction of strengthening the company when it comes to the general financial performance, with the past performance yielding to a more focused and streamlined organization that has produced a solid fourth and a full year results involving one of the strongest annual international comparable growth of sales since the period of 2011 along with cash flows franchise in most of the McDonald's major markets (Wong,2016).Looking at the past financial performance of McDonald's, the corporation is moving on the right path as they are pursuing their major goal of being recognized by the customers as one of the modern company that is smartly competing to become Burger company.
Mc Donald'sCorporation is recognized to be one of the global greatest corporations of first food joints that are currently offering services to over forty-seven million customers, on a daily routine. The company has opened 36000 outlets across the globe in which it sells different products. McDonald's sells different soft drinks and fast foods such as chicken, burgers, ice cream, burger, salads and different types of a milkshake. Ideally, when it comes to market differentiation, many McDonalds restaurants have been considered an advertising gear towards children through coming up with playgrounds for a young child with every McDonalds restaurant is standing under the operation n of corporation or franchise by it. Overall, the company has been in the past gaining revenue from royalties, rent sales in the company-operatedrestaurant, thefee paid by the franchisees and the overall sales volume gained from the restaurants.
The McDonald Company is one of the recognized corporations which is a publicly owned corporation listed in New York Stock Exchange with the company experiencing an increase in the dividends they are being offered so as to increase their profit and performance every year. Considering the main services and product offered by the corporation, McDonalds offers a well branded fast food that is found in most parts of different cities across the World with a menu that provides items such as the big Quarter Pounder or Mac.
This paper will focus on the profitability, present liquidity, the market value financial ratio and efficiency for MacDonalds corporation from 2012 to 2016. Additionally, the paper will also bring a discussion on the McDonalds financial trends and comparison of the financial ratios from all its 18 outlets located in different countries.
2.0 Financial Analysis of MacDonalds
To understand the financial performance, it is important to analyze financial information from the different financial reports. The analysis of these financial reports can be done through the use of ratio analysis in order to know the ability of MacDonald Company to generate profits, meet its financial obligations and also to assess its efficiency.
2.1 Efficiency Ratios
Concentrating on the efficiency ratio, the focus will be on how efficient a company is making use of its assets. On the other hand, most investors depend on the efficiency ratios to identify the speed at which a business is converting receivables into cash flow and how quickly a business is selling its inventory. Through the efficiency ratio analysis, we can determine how well a company is making use of its liabilities and assets. The analysis majorly focuses on the measurement of efficiency through by making calculating the fixed assets turnover, the receivable turnover and thetrade debtorcollection period along with the payment period of the creditor. Those ratios are specifically significant when the comparisonis made between competitors who are in the same industry.
Efficiency ratio is used in the analysis of MacDonald Plc financial performance. It is used to measure how MacDonalds uses its assets and liability to generate income. Efficient business organization uses limited amount of assets to generate more income while inefficient company uses excess assets to generate low income for the company.
Table 2: Efficiency Ratios- McDonalds Corporation from the year 2014 to 2016
Ratio Formula 2012 2013 2014 2015 2016
Account receivable Turnover Credit sales Average account receivable22.54 21.23 20.23 20.2720.04Inventory Turnover Cost of salesaverage inventories162.3 159.2 154.1 148.28 150.80Fixed assets Turnover SalesAverage fixed assets0.781 0.830.78
Account payable turnover Total credit purchasesAverage payable1.57 1.49 1.42 1.391.2
Trade debtor collection period 365days/debtors turnover ratio 13 14 15 13 15
Account receivable period 365days/account receivable turnover ratio 15.9 16.2 17.6 18.03 17
In stock turnover, McDonalds has positive trends that demonstrate continuous improvement for the past three years. In this case, the higher stock turnover is a demonstration of how more efficient the corporation is in place to promote selling and purchasing of goods. McDonald's cost of Revenue is extremely different with other organizations bringing a large different when it comes to achieving competitive advantage.
Ideally, when it comes to measuring efficiency, the second measure of efficiency involves the fixed asset turnover. The performance of McDonald has shown that the fixed assets are used in generating more sales, which demonstrate a higher level of fixed assets which normally produces more sales. In this case, the vast of the result of the ratio, the more in investment McDonald has been experiencing into fixed an asset which is recovered by the number of sales. In McDonald's, we realize that the number of total assets is quite different from the total revenue with higher revenue experienced in the long run (Pur, 2016). This shows that with the great number that the corporation has, it can produce more than the total asset the company owns. Focusing on the trade debtor collection period which is used in determining the period a customer is needed to pay back their goods. With the higher result of McDonalds ratio is, the more the chances that customer is required to ensure that the goods are paid back. On the other hand the higher the result of this ratio is also an indication that the company has a higher chance of better performance than other companies that are running into a cash flow problems and will not be in a position of covering its sales costs.
The efficiency of this company also increases over time. From 2014, MacDonald is able to collect its debts within 18 days but at the end of 2016, it collected its accounts receivable within a period of 17 days. This therefore show that its efficiency increases annually. Furthermore, the stock turnover also increases over time. In 2014, MacDonald was able to turn its stock into sales within a shorter time as compared to 2016. This is also a very important indication of improvement of financial efficiency of this company.
Mc Donalds efficiency ratio has shown great improvement from one year to the other. The sales inventory ratios and the inventory turnover have been experiencing improvements from every year, and most importantly it is becoming better than the industry standards. On the other hand, the other efficiency ratio expresses that Mc Donalds has great space to facilitate improvement and the performance is below the standard of the industry (Swamy, 2015). Though the account receivable turnover experience improvement year after year. The tota...
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