Financial Analysis Mcdonald\'s Like Many

Financial Analysis

McDonald's like many other companies was affected by the recent global financial crisis, and its revenue and profitability was affected. However, presently, the company has recovered in the last two years. This is very clear when you examine McDonald's from 2007 to 2011. The net income of McDonald's has steadily risen from 2007 to 2011. As shown in its financial report, (see 2011 annual report), in 2007, its net income was $2,395 millions. The following year, its net income increased to $4,313 million, this was followed by a net income of $4,551 in 2009, and then $4,946 million in 2010. In 2011, McDonald's was again on a positive trend posting a net income of $5,503 million. This steady increase in net income shows that the strategies that McDonald's applied following the global crisis were effective and it has been able to maintain if not increasing its market share.

This steady increase of net income also shows that McDonald's fully recovered from the financial crisis and does not suffer any financial troubles. It is expected that its strong financial performance will continue in the coming years.

Looking at McDonald's consolidated statement of income; it shows that the company sales from company-operated restaurants and from company's franchised restaurants have both been a steady increase in the last three years. In 2009, the revenue company-operated restaurants was $1,458.5 millions, the following year, this figure rose to $16,233.3 millions and in 2011, it was $18,292.8 millions. This shows that the market share of the McDonald's is slowly increasing, or its customers are buying more than before.

Summarize the company's financial health. How does it compare to other companies in the industry?

To summarize the financial health of McDonald's we use financial ratio of the company. As noted by Maclaney and Atrill (2002) ratio analysis offer a general position of a company's financial situation. They added that ratio analysis is the initial step in evaluating a business. The recovery of the recent global downturn that McDonald's has undergone is illustrated by the ratios calculated below. The ratio analysis is done of a five-year period that will examine the performance of McDonald's.

Net margin

Financial ratio demonstrated that the Net Margin (NM) reached 20.38 in 2011-2012, there has been slight decrease since in 2010/2011 was 20.55. The fact the McDonald's recorded slight reduction does not mean that the financial performance of the company is in doubt; this is because the final annual results are not yet out. When the Net Margin results are examined for the last 10 years, it shows that the company has been on the positive growth. In 2002/2003 the Net Margin was only 5.8, but ten years later this was 20.38, a very huge increase of about 400%. The increase shows that the strategic approaches taken by the company have been well implemented and sales went up, while cost was maintained at lower levels.

Asset turnover

From the record, it can be noted that the company has never reported a decline in its asset turnover, in 2002/2003 financial year; the asset turnover was 0.66%. In 2008, the global recession what hitting hardest, however the company still recorded an asset turnover of 0.78% an increase from 0.73% from the previous year. This shows that McDonald's did not need to invest a lot during recession, but the revenue coming in continued to increase. Indeed, the company continued on a positive path and in 2010/2011 the company posted 0.83% in asset turnover.

It is worth noting that asset turnover ratio does not consider the profitability of the company in relation to its assets. It only examines revenues earned and not profits. As noted by Maclaney and Atrill (2002) this is what differentiates asset turnover and return on asset.

ROE

From the financial chart, it can be seen that the ROE profitably ratio has continuously increased for the last 10 years, though was a decline in 2007 as the company recorded 15.58%, where in 2006 the company had recorded 23.16%. The general upwards movement shows a good performance of the company and is attributed to several factors, such as the increase in market presence. On the marketing front, the McDonald's has been on aggressive marketing campaign. The proper strategies adopted by McDonald have maintained a satisfactory ROE figure even when the overall global economy was in recession.

Stock market ratios

Earnings per Share

As can be seen from the chart, EPS was lowest in 2007 at $1.98 this could be attributed to the global recession at was going on that year. Shareholders thus got the lowest rate per share in 2007-2008. However, since 2008 the EPS rate has steadily increased (in 2008 it was $3.76 in 2009 it was $4.11 and in 2010 it was $4.58, and in 2011, it reached $5.27) the balance sheet of the company and cash flow statement show that shareholders have continued to invest by buying properties for future expansion of the company stores.

Diluted Earnings per Share

DPS also declined in 2008, but just like EPS (financial ratios), it steadily increased in the subsequent five years (2007 to 2011). However, the fact that the DPS has shown a steady increase removes any worries for Sainsbury as it reflects that shareholders are ready to ensure that the company continues to be profitable.

When this result is compared with those from Burger king and Wendy's there is a clear difference, McDonald's performance is much better than the other two.

A summary of the company's technological advantages,

Compared to other players within the industry, McDonald's is well placed on the technological front. The company has innovative methods and machines that put it ahead. The company has also embraced online marketing to process customers' orders and for marketing purposes.

Describe how globalization has affected the McDonald's business strategies.

There is enough indication that globalization is making the conventional ways of transacting business basically irrelevant. As a result, there is a growing necessity for multinational companies including McDonald's to develop global approaches. As business atmosphere changes from local to global, McDonald's is increasingly facing challenges of rethinking its business strategies and realigning its strategies to match the complexity created by globalization. This is basically the challenge that McDonald's is facing; to formulate practicable global strategies, develop and facilitate supportive procedures through which globalization impacts can be managed, and at the same time develop proper conditions through which the organization strategy, culture process and structure can meaningful be redefined to attain organization effectiveness in the global arena.

Globalization and internationalization are two related strategies that multinationals can follow. Globalization strategy entails formulating marketing approaches that view the world as one single body. Thus, marketing strategies will be standardized, same products and similar processes, prices and promotional campaigns. This kind of strategy calls for a total dedication to international marketing, and it views the world as a single market. A good example of a multinational that has embraced this strategy is Coca-cola, though its promotional campaign is at times tailored to suit the local market.

On the other hand, McDonald's has embraced international strategy. Accordingly, McDonald's has entered many foreign markets through franchising. This strategy has allowed the company to customize its marketing strategies differently in response different markets and regions that it has operations. However, McDonald's has been able to group its markets in groups according to their social, cultural, political, economical and technological similarities.

As note by Hollensen (2004) multinational ought to be more global for them to succeed in this global competitive arena. Thus, they have to change from corporations that treat their overseas branches as secondary, but treat their whole operations as being one corporation. Hollensen (2004) adds that as markets become more and more similar and globalization takes root, for corporations to succeed, they have to globalize, an aspect that McDonald's has followed.

McDonald' expansion to international market is because of the need to gather and increase the company's market share and increase its financial base. Advancement in technology including communication efficiency and better international relations has contributed to the promotion of international trade. Increasing competition is another aspect that has enhanced the Starbuck's international expansion. Through its international marketing approaches Starbucks has been able to meet its objectives. McDonald' management has an obligation to further propel the company forward thus able to create and maintain a healthy international marketing culture within itself.

Generally, McDonald' uses franchising because it transfers the financial risks from the McDonald' to an individual business. Subsequently, this is beneficial to McDonald' because it can open many new stores with less risks to the company, and make more profits through doing so. More so McDonald's need to carry out minimal research and improvement costs since the franchisee has greater familiarity of the local market where the store opened. However, the biggest challenge of internationalization is that regardless of the high number of rules and directives that McDonald's would theoretically have in position for a franchisee, each one of the store would be managed slightly different. In addition, in franchising there is a danger of various stores omitting some of the menu to its standards, and instead picking and selecting what products (coffee equipment, music, books) to offer the customers.

Conduct a benchmarking analysis

As explained by Prasnikar, Debeljak and Ahcan (2005) benchmarking depends on comparing between two activities of an organization and another. In our case, we shall compare McDonald's activities and those of its competitors, Burger King and Wendy's.

• Best practices

McDonald's as a main player in the fast food industry is concerned with best practices with the industry. To this end, the corporation has adopted some best practices that include sustainability, nutrition and well-being, employee experience ad environmental responsibility. Accordingly, McDonald's protects the environment by going green and using methods that protect and conserve the environment. McDonald's also encourages its suppliers to uphold effective environmental. The company treats it employees well and offers them good working conditions as a way retaining them. Employees are offered training and promoted accordingly. McDonald's also adheres to ethical conduct its operations and food items are produced ethical. Similarly, the company also takes part in community development. These best practices are witnessed across the industry and can be observed both at Burger king and Wendy's.