Financial case study analysis and applications

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

d. Comments on the expense distribution

The company expenses distribution for the 2012 fiscal year consists of sales, general and admin. The company recorded the total expenses of approximately $2.2 billion dollars for the 2012 fiscal year. Moreover, other operating expenses consist of $244 million. The overall company operating expenses for the 2012 fiscal year are 2.21 Billion. The pie chart shows the expenses distribution of the company for the 2012 fiscal year. Based on the data presented, the company sales, general admin expenses consist of the 91% of all the total expenses, while other expenses consist of 9%.

e. Company's major assets for FY 2012

McDonald has recorded both the current and fixed assets for the 2012 fiscal year. The table below presents the company current and fixed assets.

McDonald Assets for the FY 2012

Current Assets

Cash

Cash and Equivalent

2,336

Total Cash

2,336

Receivables

1,375

Inventories

Prepaid Expenses

1,089

Total Current Assets

4,922

Non-Current Assets

Property, plant and eq...

Gross property, plant

38,491

Accumulated Depreciati...

(13,814)

Net property, plant an..

24,677

Equity and other inves...

1,381

Goodwill

2,804

Other long-term assets

1,603

Total non-current assets

30,464

Total Assets

35,387

Source: Morning Star (2012).

Fig 2: Pie Chart of McDonald Asset Distribution for 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.