Investment risk and returns analysis of McDonald's Corporation

Investment Analysis

McDonald's Corporation

The McDonald's Corporation is the largest fast food chain in the world and it has showed tremendous growth over the last years and has adopted such strategies that have made it to address the political, cultural and economic threats that pertain in the external environment. The financial and risk analysis of the company indicates that the company holds positive growth prospects for its investors and shows its positive financial strength.

Investment Analysis

Cultural Analysis

Political Analysis

Economic Analysis

Risk Analysis and Possible Returns

APPENIX --

McDonald's Corporation is the largest fast food chain in the world and is operating 35,000 outlets in 119 countries by serving the 68 million consumers on daily basis. The company is headquartered in United States and was founded in the year 1940 and started to expand its operations in the year 1948. According to Statista (2014), the annual sales of McDonald's for the year 2013 incorporated $28.11 billion which indicates the market and financial position of the company with the brand value of 84 million. The McDonalds's has employed 440,000 people in the world and is accounted as the second largest employer in the world. The products of McDonald's include hamburgers, fries, cheeseburgers, milkshakes, desserts and fish.

McDonald's serves customers in the form of Cafes where sophisticated area for dinning has been provided, Drive-ins where highway consumers are served, provides play area for children, facilitates free delivery and ensures that the served food is healthy and hygienic. McDonalds is placed at the 6th rank in the world's most valuable brands by the Forbes (2014) and the company intends for continuous improvement in its products and services in order to maintain its position and satisfy the ever-changing demands of its customers.

Investment Analysis

The McDonald's Corporation has been analyzed in order to evaluate the risks that persist in terms of investment and the company has been evaluated on the following grounds:

Cultural Analysis

The cultural forces of the society adapt with the period of time but the rigid perspectives of culture also impacts that environment in which an organization wants to conduct its business activities and generate profits. McDonald's being the number one brand in the fast food industry, is originated from the United States and thus understands that culture of the country and understands the needs of its customers. However, many cultural differences prevail in the United States that are addressed by McDonald's in an adequate manner. The numbers of culture that prevail in the United States are being addressed by the products of McDonald's. The increasing trend of people towards the healthy food by means of the reduction of obesity has made McDonalds to diverse its food products and the introduction of salads and low calorie menu took place (Markatos, 2006).

The traditional hamburgers and cheese burgers offered by McDonalds address the American culture, however, the numbers of cultures that are being persistent from the history of America are also addressed by the menu offered by McDonalds. For example, introduction of Mexican food in McDonalds was due to the number of Mexican people in the U.S. And thus, McDonalds captured a vast population in order to generate profits and growth in business prospects.

Therefore, the cultural analysis of McDonalds indicates that the organization has been successful in order to identify the culture and trend from the society and then develop its products in response to the observed culture.

Political Analysis

The political factors arise due to the changes in government regulations and legislations and they influence the organizations that prevail in such environment. The increasing rate of obesity and health concern that exists in the U.S. caused the political pressure on the health concerns of the public and emphasized the provision of healthy food from the fast food industry. McDonalds addresses this factor by means of making its menu healthy for its consumers by offering salads and low calorie food. The McDonald's corporation has been criticized for the food items it serves, mainly comprising of fries and cheeseburgers, therefore, the company has dynamically changed itself and has become involved in the health policy regulated by the United States (Markatos, 2006). Moreover, the government regulations with respect to the environmental concerns has also emphasized the operations conducted by McDonalds in which the company has adapted the idea of GO GREEN, and has developed environmental friendly restaurants by reducing the waste generated from its production process and has decreased the fabrication of carbon dioxide.

However, the company was adhered to break the regulation of child labor when the underage employees were found working in McDonalds and since then, the company has strengthen its procedure of employment and has ensured that no underage employees are being hired locally that may negatively affect the organization's image and can cause monetary loss of being sued.

Risk Analysis and Possible Returns

The annual revenue of the company predicts the viability of the business model that has been adopted by the company which mainly comprises of its marketing, sales and product development strategies. According to Statista (2014), the revenue of McDonald's for the year 2011 was $27.01 billion and the revenue slightly increased during the year 2012 with the revenue of $27.57 billion. The annual revenue increased during the year 2013 and accounted for $28.11 billion whereas, the decrease in revenue for the year 2014 has been observed which accounted for the total revenue of 27.44 billion dollars. Therefore, the revenue of the company has been slightly fluctuated over the last 4 years and the revenue trends of the company are illustrated in Appendix -- 1.

The earning per share of the company indicates the amount of the company's profit that is being allocated to the common stock's share of the company. According to 4-Traders (2015), the earnings per share of McDonalds for the year 2012 was accounted as $5.36 million and it increased during the year 2013 and accounted as $5.55 million whereas, the earning per share of the company is found to be decreased for the year 2014 with the $4.82 million. The projected earnings per share of the company are forecasted as 5.03 for the year 2015 which makes it an ideal state for the investors to invest in the company. The trend for the earning per share of the company is illustrated in Appendix -- 2.

The dividend per share of the company indicates the dividend that has been paid to the common stock holders during the year. It indicates the efficiency of the company to provide its investors with the profit. According to 4-Traders (2015), the dividend per share of McDonalds accounted for $2.87 million for the year 2012, whereas $3.12 million were accounted for the year 2013 and it has been projected that the company will pay its dividend of $3.46 million for the year 2015. The increasing dividend trend of the company indicates that ideal state for the investors to invest in McDonalds and also indicates the strength of the company to attract and retain its existing investors. The detailed illustration for the dividend per share of the company is illustrated in Appendix -- 3.

The yield of the company indicates the interest rate that has been offered by the company in terms of its investors and stock holders. The yield provides the effective annual rate of return for the company. According to 4-Traders (2015), the annual yield for the McDonalds was accounted as 2.98% for the year 2012 which increased in the year 2013 and accounted as 3.24%. The projected annual yield of the company is forecasted as 3.59% for the year 2015 which indicates the growth and higher profits for the coming year. The increasing trend of yield also makes the company feasible for potential investors by means of its annual rate of return. The yield for the company is illustrated in Appendix -- 4.

The current ratio of the company provides the state of the company in which it holds the ability to possess enough cash resources to provide for its debt and indicates the strength of the company to be invulnerability towards its liability. According to Nasdaq (2015), the current ratio of McDonald's was accounted as 125% with respect to its liability for the year 2011 which indicates that the company holds the 125% asset or cash to meet its liability. The current ratio for the year 2012 was accounted as 145% and increased in the year 2013 with 159%. However, the current ratio for the year 2014 has been slightly decreased to 152%. Therefore, the current ratio trend of the company indicates that company possesses enough asset and cash to meet its liabilities and over the past 4 years the company has strengthen its position. The detailed trend for the current ratio has been illustrated in the Appendix -- 5.

The operating profit of the company indicates the profitability of the company after meeting its all expenditures. According to Nasdaq (2015), the operating profit of McDonalds was accounted as 32% for the year 2011 and remained same during the year 2012. However, the operating profit for the year 2013 decreased and accounted for 31% and then decreased again by 2% during the year 2014. Therefore, it indicates that the company expenses has been increased over the past 3 years which indicates that the company is making investments and is broadening its business and it indicates the higher future profits for the investors. The detailed trend for the operating profit of McDonalds has been illustrated in the Appendix -- 6.

Conclusion

The analysis of McDonalds indicates that the company is able to meet political, cultural and economic threats by means of its strategies. McDonalds tends to follow the strategy that promotes continuous growth and adaptability in response to the environmental factors. The company tends to develop its products with respect to address the cultural demands of citizens and the products of the company is placed at the best cost in which consumers are provided with healthy food at low cost in accordance with the per capita income of the country. The increasing trend of environmental practices has made McDonalds to become environmental friendly with respect to its business and cooking procedures.

The profitability of the company indicates the positive prospectus for the investors and the history of dividends indicates that the company has been profitable over the past years and will continue to be profitable for its investors. The company possesses strong financial ability to meet its liabilities with respect to its assets which reduces the potential risk for new and current investors. Moreover, the continuous investment and development of business processes of McDonalds indicate that the company is projected to provide tremendous profits to its investors.

Recommendations

It is recommended for the investors that they should invest in the company because McDonalds is making continuous development in its business processes and possesses the ability to address any potential threats which may rise due to the political, cultural and economic changes. The company possesses the adequate amount of assets to meet its liabilities which decreases the risk for potential investors by means of their profitability. Therefore, McDonalds is feasible for the investors in order to invest and generate profits.