Case Study-McDonalds
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Transcript of Case Study-McDonalds
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McDonaldsBy: Tara ArdLauren BakerBrad KruezingerPayal PatelJessica Rivero
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Presentation Overview•Assessing the Business Environment• Company• Industry
• Franchise Industry• Suppliers/Customers• Bargaining Power
• Economy• Boom• Recession
•Read Study the Financial Statements & Footnotes• Audit Report• Significant Transactions
•Assessing Earnings Quality• Comparing the numbers to
management’s biases•Analyzing the Financial Statements• Ratios
•Predicting Future Earnings/Cash Flows• Future Earnings• Future Cash Flows• Estimates of Stock price
• Over/under priced
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• Began in 1940 by brothers in San Bernardino, California• In 1948 the “Speedee Service System”• In 1955 McDonalds was sold to Ray Kroc• Public Company• Mainly a franchiser
– Over 31,000 locations• 25,465 are franchised and the rest are company owned
• Locations– 119 countries
• Customer Base– Serve 47 million daily
• Employee Base– Currently employ 1.5 million people– 1 in 8 persons have worked at McDonalds
Company History & Facts
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McDonald’s Business ModelRevenue
Rent
Logo
Sales
Investments
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• According to Hoovers– Main Competitors are:• Burger King• Subway• Yum! (a.k.a. Taco Bell)
McDonald’s Competitors
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• New Competitors emerging out of McDonald’s new McCafe line:– Starbucks– Dunkin Donuts
McDonald’s Competitors
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McDonald’s Globalization
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McDonald’s Audit Report•2008 Financial Statements:• Report of Independent Registered
Public Accounting Firm-Ernst & Young
• Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting-Ernst & Young
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Significant Transactions• Discontinued Operations
– Boston Market– Prêt a Manger– Chipotle Mexican Grill
• Other– LATAM Transaction
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Assessing Financial Statements & Footnotes
•Net Income 2007• $2,395.1 million
•Operating Income 2007• $3,879 million
•Total Shareholder’s Equity 2007• $13,382 million
•Net Income 2008• $4,313.2 million
•Operating Income 2008• $6,442.9 million
•Total Shareholder’s Equity 2008• $15,729.8 million
•Property, Plant, & Equipment are recorded at cost and are depreciated using the straight-line method• Buildings up to 40 years• Equipment range 3 to 12 years
•Goodwill• Comes from the purchases of restaurants from franchisees
•Cash Equivalents• Short-term, highly liquid investments with an original maturity of 90 days or less
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McDonald’s FootnotesContinued
•Contingencies• Policy is to determine likelihood
of any outcomes or judgments and the probable loss• After careful analysis any
needed accruals are made• Currently-McDonald’s
does not believe that any current matter will have a material affect on their financial statements
•Inventory• McDonald’s does not disclose
which inventory cash flow assumption they use because the inventory reported on the balance sheet does not have a material impact
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• Management’s Letter• December 31, 2008 Facts
Earnings Quality
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• Profitability Ratios– Return on Equity• December 31, 2008=32.23
– Return on Assets• December 31, 2008=15.15
– Return on Sales• December 31, 2008=0.20
Analyzing Financial Statements
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• Leverage Ratios– Common Equity Leverage• December 31, 2008=0.92
– Capital Structure Leverage• December 31, 2008=2.02
– Debt/Equity Ratio• December 31, 2008=1.02
– Long-term Debt Ratio• December 31, 2008=0.36
Analyzing Financial Statements
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• Solvency Ratios– Current Ratio
• December 31, 2008=1.39– Quick Ratio
• December 31, 2008=1.20– Interest Coverage
• December 31, 2008=11.88– Accounts Payable Turnover
• December 31, 2008=27.51
Analyzing Financial Statements
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• Asset Turnover Ratios– Receivables Turnover• December 31, 2008=37.8
– Inventory Turnover• December 31, 2008=115.89
– Fixed Assets Turnover• December 31, 2008=1.14
– Total Asset Turnover• December 31, 2008=0.94
Analyzing Financial Statements
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• Other Ratios– Earnings per Share
• December 31, 2008=3.77– Price/Earnings Ratio
• December 31, 2008=16.5– Dividend Yield Ratio
• December 31, 2008=0.026– Stock Price Return
• December 31, 2008=0.08
Analyzing Financial Statements
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• Future Earnings-• Cash Flows-• Stock over/under priced-
Predicting Future EarningsAnd Cash Flows
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• McDonalds is strong enough to withstand recession and still payout dividends and create revenue
• McDonalds will continue to grow worldwide
• Etc.
Overall Conclusion ofAnalysis