Financial Analysis of the McDonald's Company

Financial Analysis of the McDonald's Company

Stock ticker symbol, exchange where traded NYSE: MCD

Address of company headquarters

McDonalds Corporation

One McDonald's Plaza

Oak Brook, IL 60523

Company phone number: 630.623.3000

Company Overview

The McDonald's Corporation is a global company that conducts business in 117 countries. McDonald's operates 32,737 restaurants and 26,338 franchises in the highly competitive fast food industry. Since 1940, McDonald's has built a loyal customer base by continually dedicating themselves to customer service and providing high quality fast food for its customers. Presently, McDonald's could boast of over 60 million customers and the company serves average of 64 million customers daily. In the United States, and other countries where McDonald's is operating, fast food business is very competitive. Despite the competition the company is facing, McDonald's has been able to record revenues of more than $16 billion in restaurants and revenues of more than $7 billion in its franchise restaurant business. McDonald's operates in six geographical locations. The company business operations are in the U.S, Europe, Middle East, Asia-Pacific, Latin America and Africa. In the U.S, McDonald's total revenues account for 34%. In Europe, the company total revenues account for 40% while in Asia/Pacific, Middle East and Africa (APMEA) segment, McDonald's total revenues account for 21%. The company records a remarkable success in the U.S with more than 3.8% growth in eight consecutive years. In addition, McDonald's has gained competitive market advantages in its international business operations. The U.S and Canada are the McDonald's major markets. In France, the UK, and Germany, the company market performances accounts for 5% of the total revenues in Europe. Similarly, the company market performances in Australia, Japan and China account for 50% of APMEA revenues. McDonald's continues to focus on customer experience, and achieve global success while by providing branded affordability. In all countries that McDonald's operates, the company has been able to achieve global comparable sales of increased of 5.0% and 4.9% in guest counts. Since 2007, McDonald's financial performance has risen steadily. The company recorded $2.4 billion in the net income in 2007. In 2008, McDonald's net income increased to $4.3 billion, and the net income was $4.5 in 2009. McDonald's recorded high success in 2010 the company recorded $4.9 billion in the net income and the comparable sale growth of 5.0% with earning per share rises by 11%. Typically, McDonald's recorded "92 Consecutive months of global comparable sales increases through December 2010" (McDonald's Corporation Annual Report 2010, P 2).

Financial Analysis of McDonald Corporation

The company's financial analysis is revealed by using various financial instruments to evaluate the financial strength and weakness of a company. While a company financial analysis enhances an understanding of the financial stability of a company, it also enhances an investment decision of a company. Based on a company financial analysis, an investor could decide whether a company is liquid or solvent. To evaluate McDonald's financial analysis, this paper focuses on the company balance sheet, income statement and cash flow statement. The paper uses the company's financial data over the past few years to evaluate the company's vulnerability to current financial threats of recession, a major competitor and higher interest rates.

Evaluation of McDonald's Financial Data

McDonald's has gained the market's competitive advantages. The company's total revenues were $23.5 billion in 2008. In 2009, the company's total revenues fell to $22.7 billion. However, in 2010, McDonald's total revenue rose to $24 billion. Based on the company's financial data, McDonald's also recorded a rise in net income in the past few years. In 2008, McDonald's recorded $4.3 billion in net income. In 2009, rose slightly to 4.5 billion and in 2010 increased to 4.9 billion. However, the McDonald's stocks performances are traded less than its median and mean target value. In 2010, the company stock close price was traded at $77.56 revealing a decrease of 0.5%. The low target was $73 and the mean target is $85.56.

McDonald Ratio Analysis for Long-Term Investment

Sales and Income Record:

Dollars in millions Fiscal Years

2007 2008 2009 2010 2011

Sales 22,790,000,000.00 23,520,000,000.00 22,740,000,000.00 24,070,000,000.00 27,010,000,000.00

Percent change in sales each year 3.20% -3.32% 5.85% 12.21%

Net Income 2,395,000,000.000 4,313,000,000.000 4,551,000,000.000 4,946,000,000.000 5,503,000,000.000

Percent change in net income each year 80.08% 5.52% 8.68% 11.26%

GRAPH OF SALES & NET INCOME, FY 2007 2011

An increasing trend is depicted on the graph and on the table for sales in exception to year 2009. The presentation also shows that the company's net income does not necessarily follow the trend on sales which mean that the income statement structure of the company fluctuates. The sales in 2009 decreased from 2008 and yet the net income increased in 2009.

Expense Distribution:

Expense Category FY 2011 (Dollars in millions)

Cost of goods sold 16,320,000,000.00

Selling, general & administrative expenses 2,394,000,000.00

Other Operating Income (Expense) 236,800,000.00

Non-Operating (income) expense, net 517,500,000.00

Provision for income taxes 2,509,000,000.00