Case Study-McDonalds

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Financial Accounting Management-Case Study of McDonalds\' financial statements

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Case Study-McDonalds

  1. 1. McDonalds<br />By: <br />Tara Ard<br />Lauren Baker<br />Brad Kruezinger<br />Payal Patel<br />Jessica Rivero<br />
  2. 2. Presentation Overview<br /><ul><li>Assessing the Business Environment
  3. 3. Company
  4. 4. Industry
  5. 5. Franchise Industry
  6. 6. Suppliers/Customers
  7. 7. Bargaining Power
  8. 8. Economy
  9. 9. Boom
  10. 10. Recession
  11. 11. Read Study the Financial Statements & Footnotes
  12. 12. Audit Report
  13. 13. Significant Transactions
  14. 14. Assessing Earnings Quality
  15. 15. Comparing the numbers to management’s biases
  16. 16. Analyzing the Financial Statements
  17. 17. Ratios
  18. 18. Predicting Future Earnings/Cash Flows
  19. 19. Future Earnings
  20. 20. Future Cash Flows
  21. 21. Estimates of Stock price
  22. 22. Over/under priced</li></li></ul><li>Company History & Facts<br />Began in 1940 by brothers in San Bernardino, California<br />In 1948 the “Speedee Service System”<br />In 1955 McDonalds was sold to Ray Kroc<br />Public Company<br />Mainly a franchiser<br />Over 31,000 locations<br />25,465 are franchised and the rest are company owned<br />Locations<br />119 countries<br />Customer Base<br />Serve 47 million daily<br />Employee Base<br />Currently employ 1.5 million people<br />1 in 8 persons have worked at McDonalds<br />
  23. 23. McDonald’s Business Model<br />
  24. 24. McDonald’s Competitors<br />According to Hoovers<br />Main Competitors are:<br />Burger King<br />Subway<br />Yum! (a.k.a. Taco Bell)<br />
  25. 25. McDonald’s Competitors<br />New Competitors emerging out of McDonald’s new McCafe line:<br />Starbucks<br />Dunkin Donuts <br />
  26. 26. McDonald’s Globalization<br />
  27. 27. McDonald’s Audit Report<br /><ul><li>2008 Financial Statements:
  28. 28. Report of Independent Registered Public Accounting Firm-Ernst & Young
  29. 29. Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting-Ernst & Young</li></li></ul><li>Significant Transactions<br />Discontinued Operations<br />Boston Market<br />Prêt a Manger<br />Chipotle Mexican Grill<br />Other<br />LATAM Transaction<br />
  30. 30. Assessing Financial <br />Statements & Footnotes<br /><ul><li>Net Income 2007
  31. 31. $2,395.1 million
  32. 32. Operating Income 2007
  33. 33. $3,879 million
  34. 34. Total Shareholder’s Equity 2007
  35. 35. $13,382 million
  36. 36. Net Income 2008
  37. 37. $4,313.2 million
  38. 38. Operating Income 2008
  39. 39. $6,442.9 million
  40. 40. Total Shareholder’s Equity 2008
  41. 41. $15,729.8 million
  42. 42. Property, Plant, & Equipment are recorded at cost and are depreciated using the straight-line method
  43. 43. Buildings up to 40 years
  44. 44. Equipment range 3 to 12 years
  45. 45. Goodwill
  46. 46. Comes from the purchases of restaurants from franchisees
  47. 47. Cash Equivalents
  48. 48. Short-term, highly liquid investments with an original maturity of 90 days or less</li></li></ul><li><ul><li>Contingencies
  49. 49. Policy is to determine likelihood of any outcomes or judgments and the probable loss
  50. 50. After careful analysis any needed accruals are made
  51. 51. Currently-McDonald’s does not believe that any current matter will have a material affect on their financial statements</li></ul>McDonald’s Footnotes<br />Continued<br /><ul><li>Inventory
  52. 52. 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</li></li></ul><li>Earnings Quality<br />Management’s Letter<br />December 31, 2008 Facts<br />
  53. 53. Analyzing Financial Statements<br />Profitability Ratios<br />Return on Equity<br />December 31, 2008=32.23<br />Return on Assets<br />December 31, 2008=15.15<br />Return on Sales<br />December 31, 2008=0.20<br />
  54. 54. Leverage Ratios<br />Common Equity Leverage<br />December 31, 2008=0.92<br />Capital Structure Leverage<br />December 31, 2008=2.02<br />Debt/Equity Ratio<br />December 31, 2008=1.02<br />Long-term Debt Ratio<br />December 31, 2008=0.36<br />Analyzing Financial Statements<br />
  55. 55. Analyzing Financial Statements<br />Solvency Ratios<br />Current Ratio<br />December 31, 2008=1.39<br />Quick Ratio<br />December 31, 2008=1.20<br />Interest Coverage<br />December 31, 2008=11.88<br />Accounts Payable Turnover<br />December 31, 2008=27.51<br />
  56. 56. Asset Turnover Ratios<br />Receivables Turnover<br />December 31, 2008=37.8<br />Inventory Turnover<br />December 31, 2008=115.89<br />Fixed Assets Turnover<br />December 31, 2008=1.14<br />Total Asset Turnover<br />December 31, 2008=0.94<br />Analyzing Financial Statements<br />
  57. 57. Analyzing Financial Statements<br />Other Ratios<br />Earnings per Share<br />December 31, 2008=3.77<br />Price/Earnings Ratio<br />December 31, 2008=16.5<br />Dividend Yield Ratio<br />December 31, 2008=0.026<br />Stock Price Return<br />December 31, 2008=0.08<br />
  58. 58. Future Earnings-<br />Cash Flows-<br />Stock over/under priced-<br />Predicting Future Earnings<br />And Cash Flows<br />
  59. 59. Overall Conclusion of<br />Analysis<br />McDonalds is strong enough to withstand recession and still payout dividends and create revenue<br />McDonalds will continue to grow worldwide<br />Etc.<br />

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