Financial analysis of McDonald Corporation, 2008-2012

Financial Case Study

Company Overview

McDonald Corporation specializes in the food service globally. The company started operation in 1940, and in 1967, the MacDonald registered its trademark. The primary product of McDonald includes chicken, hamburgers, soft drink, French fries, dessert and milkshakes. Over the years, the company has expanded its menu and included wraps, fish, salads fruits and smoothies. Presently, the company operates its business through either affiliate or franchise globally and the company realizes bulk of its revenues from the fees collected from franchise. Moreover, the company derives its revenues from the royalties and rents. Since MacDonald has started operations, the company has enjoyed rapid growth. At the end of the 2012 fiscal year, the company recorded the annual revenues of more than $25.7 billion with the net profits of $5.5 billion. The company also recorded the market capitalization of $94.5 billion. The company operates in 119 countries and presently, it serves approximately 69 million customers daily.

MacDonald has its headquarter in the United States, however, the company operates in all the continents such as North America, Europe, Latin America, Asia, Australia and Africa. In 2014, the company has opened its operations in Vietnam. (

Objective of this paper is to carry out financial analysis of the McDonald Corporation. The paper uses various financial tools to analyze the company financial performances. The paper uses 5-year financial records between 2008 and 2012 to carry out the company financial analysis

a. Sales Performances and Income Record

Table 1

TTM

2013

2012

2011

2010

2009

2008

Revenue USD Mil

28,106

28,106

27,567

27,006

24,075

22,745

23,522

Gross Margin %

38.8

38.8

39.2

39.6

40.0

38.7

36.7

Operating Income (USD Mil)

8,764

8,764

8,605

8,530

7,473

6,841

6,443

Operating Margin %

31.2

31.2

31.2

31.6

31.0

30.1

27.4

Net Income (USD Mil)

5,586

5,586

5,465

5,503

4,946

4,551

4,313

Earnings -Per -- Share ( USD)

5.55

5.55

5.36

5.27

4.58

4.11

3.76

Dividends USD

3.12

3.12

2.87

2.53

2.26

2.05

1.63

Payout Ratio %

56.2

56.2

53.6

48.0

49.4

49.9

43.2

Shares Mil

1,006

1,006

1,020

1,045

1,080

1,107

1,146

Book -- Value- Per (Share USD_

16.17

16.16

15.25

14.09

13.89

13.03

12.01

Operating Cash Flow ( USD Mil)

7,121

7,121

6,966

7,150

6,342

5,751

5,917

Cap Spending ( USD Mil)

-2,825

-2,825

-3,049

-2,730

-2,136

-1,952

-2,136

Free Cash Flow (USD Mil)

4,296

4,296

3,917

4,420

4,206

3,799

3,782

Working Capital (USD Mil)

1,880

1,519

1,444

The table 1 reveals the company financial summary over the past 5 years. As being revealed in the Table 1, the company recorded the sales of $23.5 billion at the end of the 2008 fiscal years however, the sales declined to $22.7 billion at the end of the 2009 fiscal year. The decline in sales between 2008 and 2009 was attributed to the global financial crisis that affected the global economy. However, at the end of the 2010 fiscal year, the company recorded sale growth by recording more than $24 billion dollars in sales. By the end of the 2012, fiscal year, the company has recorded sales of more than $27.5 billion. Similarly, the company recorded increase in the net income between 2008 and 2012. At the end of the 2008 fiscal year, the company recorded the net income of 4.3 Billion dollars; however, at the end of 2012 fiscal year, the company recorded the growth of the net income of approximately $5.5 billion. Between 2008 and 2012, the company gross margin increased from 36.7% in 2008 to 38.8% at the end of the 2012 fiscal year. The company-operating margin also increased from 27.4% in 2008 to 31.2% at the end of the 2012 fiscal year.

c. Company's major expenses for FY 2012

Expenses for FY 2012 (U.S. Dollar In Million

Operating Expenses

Sales, General & Admin

2,445

Other Operating Expenses

(244)

Total Operating Expenses

2,212

Source: Morning Star (2012).

Fig 1: MacDonald Expenses Distribution for the FY 2012

Comment on the Asset Distribution of McDonald for the FY 2012

Overview of the company total assets for the FY 2012 reveals that the McDonald recorded the total assets of the $35 .38 billion dollars. The company assets consist of both current and non-current assets. The current assets consist of cash and equivalent, receivables, inventory and prepaid expenses. The company total current assets are approximately $4.92 Billion. However, the company non-current assets consist of property, plant and equivalent, accumulated depreciation. The net worth of the company property was $24.67 Billion for FY 2012. Other assets of the company consist of the Goodwill, Equity and other long-term investments, making the total non-current assets reaching $30.46 billion. Thus, the company recorded approximately $35.39 Billion worth of total assets for the 2012 fiscal year.

g. Company's major Capital Accounts for FY 2012

The company capital structure consists of the shareholder's equity for the FY 2012.

Stockholders' equity

Common stock

17

Additional paid-in cap...

Retained earnings

39278

Treasury stock

(30,576)

Accumulated other comp..

Total Shareholder's Equity

15294

The company capital structure consists of Common stock, retained earnings; Treasury stock, additional paid in capital, and accumulated other components. However, the retained earning consists of the bulk of the company capital structure.

Ratio Analysis

2012

2011

Liquidity

Current Ratio

1.45

1.25

Quick Ratio

1.09

1.05

Profitability

Net Profit Margin

19.82%

20.38%

Return on Assets (ROA)

15.98%

16.94%

Return on Equity (ROE)

36.82%

37.92%

Extended Du Pont equation

(5) Market value ratios

P/E Ratio

17.64

18.57

Market-to-Book Ratio

6.30

7.10

Reference

McDonald. (2012) Annual Report, MacDonald Corporation .

Morning Star (2012).McDonald's Corporation MCD. USA.