McDonald's Corporation Annual Report
McDonald's Corporation Annual Report
McDonald's Corporation Annual Report
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McDonald’s <strong>Corporation</strong> <strong>Annual</strong> <strong>Report</strong><br />
Seth Van Der Stelt<br />
ACG2021 Section #002
Executive Summary<br />
<strong>McDonald's</strong> has been and continues to be a leader in the fast food<br />
industry in the United States and worldwide.<br />
McDonald’s is committed to expansion and a focus on bigger and<br />
better, to that end <strong>McDonald's</strong> underwent a redesign in 2006 and<br />
continues to innovate and renovate. McDonald’s is recognized<br />
around the world and caters to customers regional tastes although<br />
the menu may be different a Big Mac will taste the same<br />
worldwide. Their commitment to consistency and regional tastes<br />
sets this company apart creating a profitable and growing<br />
company. The company’s mission statement is to be the UK’s best<br />
fast service restaurant experience which they are well on the way<br />
to accomplishing.<br />
http://www1.mcdonalds.com/annualreport/pdfs/Financial<strong>Report</strong>.pdf
• Jim Skinner, CEO<br />
Introduction<br />
• Home Office:<br />
McDonalds <strong>Corporation</strong> 2111<br />
McDonalds Dr. Oak Brook, IL 60523<br />
• December 2009<br />
Jim Skinner, CEO<br />
• McDonalds, the world’s largest chain of fast food restaurants<br />
predominantly sells hamburgers and well known for its Big<br />
Macs, and is dedicated to customer service, quick food, and<br />
region tailored based on the market it is located.<br />
• McDonalds company considers itself the global leader in food<br />
service with about 32,000 restaurants in about 120 countries,<br />
14,000 of which are located in the United States.
• Independent Auditors:<br />
ERNST & YOUNG LLP<br />
Audit <strong>Report</strong><br />
The independent auditors at ERNST & YOUNG LLP have audited<br />
the consolidated balance sheets, the related consolidated statements<br />
of income, shareholders’ equity, and cash flows of McDonald’s<br />
corporation for this period. In their opinion the financial statements<br />
meet with the accepted accounting principles and standards of the<br />
Public Company Accounting Oversight Board. In addition a<br />
comment was made on the McDonald’s Company’s method change<br />
for accounting uncertain tax positions to conform with an FASB<br />
interpretation.
Stock Market Information<br />
• Most recent stock price: $64.10<br />
• Twelve month trading range of stock: $50.44 - $65.75<br />
• Dividend per share: $2.05<br />
• As of March 2, 2010<br />
• Although the stock is close to its twelve month high, which can<br />
be an indication that selling would be the right choice. However<br />
I would either hold or continue to buy more shares in this<br />
company, because the PE ratio or the “multiple” is at 15.57,<br />
which is below 17, the market equilibrium, indicating that this<br />
stock is currently under priced.
Industry Situation and Company<br />
Plans<br />
McDonald’s plans to continue to grow in sales, market share<br />
and returns through a strategic focus on customers and<br />
restaurants, referred to as the “Plan to Win.” This plan will<br />
open 1,000 new restaurants and will remodel 2,300 current<br />
locations worldwide. This plan emphasizes not just bigger but<br />
a better McDonald’s. With this better not just bigger plan<br />
McDonald’s company plans to continue to grow free cash flow<br />
in the future and intend to return this cash to shareholders<br />
through dividends and share repurchases. The company also<br />
plans to make extensive expansion in the European market<br />
adding 400 new McCafes and 240 new McDonalds's<br />
restaurants.<br />
http://www.qsrmagazine.com/articles/news/story.phtml?id=9685<br />
http://retailnu.wordpress.com/2009/01/27/mcdonalds-stimulus-plan-to-expand-greatly-in-2009-in-europe/
In Millions of USD<br />
Income Statement<br />
•McDonald’s employs the Multistep<br />
Income Statement<br />
2009-12-31 2008-12-31 2007-12-31<br />
Gross Profit 8,791.80 8,639.20 7,905.20<br />
Income from<br />
Operations<br />
6,841.00 6,442.90 3,879.00<br />
Net Income 4,551.00 4,3313.20 2,395.10<br />
•Gross Profit, Income from Operations, and New<br />
Income are all increasing across the board from the<br />
previous year.
In Millions of USD<br />
Balance Sheet<br />
Assets = Liabilities + Stockholders’<br />
Equity<br />
2008 28,461.50 15,078.90 13,382.60<br />
2007 29,391.70 14,111.90 15,279.80<br />
•Overall Liabilities has seen a 6.9% increase from 2007 to 2008,<br />
whereas Stockholders’ Equity has seen a 12.4% decrease from 2007 to<br />
2008. This affected the Assets as a 3.2% decrease.
Statement of Cash Flows<br />
•Cash flows from operations were over two times the net income<br />
in 2007, whereas in 2008 cash flows were only slightly larger.<br />
•McDonald’s corporation is continuing to grow through<br />
investments in property and equipment, and treasury stock<br />
purchases. McDonald’s also saw proceeds on sale of investments<br />
in 2008.<br />
•McDonald’s primary source of financing comes from Treasury<br />
stock purchases.<br />
•Overall cash increased over the past two years.
•Consolidation<br />
•Estimates in financial statements<br />
•Revenue recognition<br />
•Foreign currency translation<br />
•Advertising costs<br />
•Share-based compensation<br />
•Property and equipment<br />
•Goodwill<br />
•Long-lived assets<br />
Accounting Policies<br />
Revenue recognition is made up of sales by company operated<br />
restaurants and the fees from the three types of franchised<br />
restaurants developmental licensees, affiliates, and conventional<br />
franchises. Property and equipment are stated at cost with<br />
depreciation and amortization using the straight-line method.<br />
The Company considers short-term liquid investments with<br />
maturity of 90 days or less to be equivalent to cash.<br />
•Financial instruments<br />
•Sales of stock by subsidiaries and<br />
affiliates<br />
•Income tax uncertainties<br />
•Per common share information<br />
•Statement of cash flows<br />
•Sabbatical leave<br />
•Fair value measurements<br />
•Business combinations<br />
•Noncontrolling interests
Financial Analysis<br />
Liquidity Ratios<br />
The current ratio although lower in 2008 is still well above one<br />
meaning current assets should be able to satisfy any shortterm<br />
obligations.<br />
In Millions of USD<br />
2008 2007<br />
Working Capital 13,382.60 15,279.80<br />
Current Ratio 1.90 2.10<br />
Receivable<br />
Turnover<br />
Average days’ sales<br />
uncollected<br />
1,028.60 165.80<br />
0.35 2.20<br />
Inventory Turnover 122.30 109.70<br />
Average days’<br />
inventory on hand<br />
3.0 3.3
In Millions of USD<br />
Financial Analysis<br />
Profitability Ratios<br />
2008 2007<br />
Profit Margin 18.30% 10.50%<br />
Asset Turnover 6.70 6.40<br />
Return on Assets 15% 8%<br />
Return on Equity 32% 16%<br />
McDonald’s has seen an across the board increase in profitability<br />
from 2007 to 2008. The company is charging more and doubling its<br />
ability to turn its assets into profit and make return on its<br />
investments.
In Millions of USD<br />
2008 0.18<br />
2007 0.29<br />
Financial Analysis<br />
Solvency Ratio<br />
Debt to Equity<br />
Debt to Equity ratio is low meaning less risk and has<br />
decreased from 2007 to 2008 resulting in a larger<br />
amount of equity.
Financial Analysis<br />
Market Strength Ratios<br />
Price Earnings have dropped<br />
between 2007 and 2008,<br />
resulting in a lower share in<br />
relation to the whole market.<br />
However dividend yield is<br />
holding steady<br />
Price/Earnings per<br />
share<br />
2008 2007<br />
14.60 23.40<br />
Dividend Yield 0.03 0.03
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