Financial Statement Analysis
The McDonald’s Company
AMM112.7006
Spring 2009 II
Prof, Angela Wu
by Xi Chen
Wen Guang Li
July 30, 2009
Company Summary
McDonald's Corporation is the world's largest chain of fast-food restaurants, primarily
selling hamburgers, chicken, french fries, breakfasts and soft drinks. More recently, it also
offers salads, fruit, snack wraps, and carrot sticks. The business began in 1940, with a
restaurant opened by siblings Dick and Mac McDonald in San Bernardino, California. Their
introduction of the "Speedee Service System" in 1948 established the principles of the modern
fast-food restaurant. The present corporation dates its founding to the opening of a franchised
restaurant by Ray Kroc, in Des Plaines, Illinois on April 15, 1955, the ninth McDonald's
restaurant overall. Kroc later purchased the McDonald brothers' equity in the company and led
its worldwide expansion. With the successful expansion of McDonald's into many international
markets, the company has become a symbol of globalization and the spread of the American
way of life. Its prominence has also made it a frequent subject of public debates about obesity,
corporate ethics and consumer responsibility.
History & Overview
 1950’s McDonalds Corporation was created. Followed by the opening of
their 100th restaurant in Chicago.
 By 1970’s there are a McDonalds in every state
 1980’s Followed its founder’s death, the McDonald Children’s Charity was
created in memory of the founder.
 As of that point, McDonalds have
restaurants in more then 40 countries
serving 20 million people a day.
 Today McDonalds are practically in every
major cities and countries around the world
Stock Performance - Chart
- McDonald’s
- Nasdaq
- Dow Jones
- S&P 500
Income Statement
2008
2007
2006
Revenue
23,522
22,787
21,586
Cost of Goods sold
14,883
9,819
14,602
Gross Profit
8,639
12,968
6,984
Administrative expenses
2,356
7,429
2,405
1,775
134
6,332
3,763
4,445
238
103
123
6,681
3,982
4,568
523
410
402
Income Before Tax
6,158
3,572
4,166
Income Tax Expense
1,845
1,237
1,293
Net Income from Continuing Ops
4,313
2,335
2,873
-
60
671
4,313
2,395
3,544
Year Ended December 31,
Non Recurring expenses
Operating Income
Other Income/Expenses Net
Income before Interest and Taxes
Interest Expense
Discontinued Operations
Net Income
All amounts in millions
(48)
Income Statement
All amounts in Millions
Growth analysis (Horizontal analysis)
Increase or (Decrease)
Increase or (Decrease)
among 2008
among 2007
2008
2007
2006
Amount
Percent
Amount
Gross Profit
8,639
12,968
6,984
(4,328)
(33.4%)
5,983
85.7%
Operating Income
6,332
3,763
4,445
2,568
68.3%
(682)
(15.3%)
Net Income
4,313
2,395
3,544
1,918
80.1%
(1,149)
(32.4%)
Year Ended December 31
Percent
• Among 2008 : Gross Profit decreased 33.4% , Operating Income Increased 68.3%, Net Income
increased 80.1%.
• Among 2007: Gross Profit increased 85.7%, Operating Income decreased 15.3%, Net Income
decreased 32.4%.
• Overall, in 2008, even though gross profit decreases, operating income and net income were
up substantially, and quality’s profit trend appears favorable; in 2007, even though gross profit
increases, operating income and net income were down substantially, and quality’s profit
appears unfavorable.
Margin Analysis (Vertical analysis)
Year Ended December 31
2008
2007
Amount Percent
Amount Percent
All amounts in millions
2006
Amount Percent
Gross Margin
8,639
36.7%
12,968
56.9%
6,984
32.4%
Operating Margin
6,332
26.9%
3,763
16.5%
4,445
20.6%
Net Margin
4,313
18.3%
2,395
10.5%
3,544
16.4%
• Gross Margin increased 24.5% (56.9%-32.4%) from 2006 to 2007, but declined 20.2% (36.7%-
56.9%) from 2007 to 2008.
• Operating Margin declined 4.1% (16.5%-20.6%) from 2006 to 2007, but increased 10.4% (26.9%16.5%) from 2007 to 2008.
• Net Margin declined 5.9% (10.5%-16.4%) from 2006 to 2007, but increased 7.8% (18.3%-10.5%)
from 2007 to 2008.
•Overall, even though gross margin increased from 2006 to 2007 and decreased from 2007 to
2008, operating margin and net margin decreased from 2006 to 2007 and increased from 2007 to
2008. Quality appeared to have improved from 2007 to 2008.
Balance Sheet
Year Ended December 31
2008
2007
2006
2,063
1,981
2,136
Net Receivables
931
1,054
904
Inventory
112
125
149
Other Current Assets
412
422
436
Total Current Assets
3,518
3,582
3,625
Long Term Investments
1,222
1,156
1,036
20,255
20,985
20,846
Goodwill
2,237
2,301
2,209
Other Assets
1,230
1,367
1,307
Total Assets
28,462
29,392
29,024
All amounts in millions
Assets
Current Assets
Cash And Cash Equivalents
Property Plant and Equipment
Balance Sheet
Year Ended December 31
2008
2007
2006
2,506
3,634
2,739
32
865
18
-
-
251
2,538
4,499
3,008
Long Term Debt
10,186
7,310
8,417
Other Liabilities
1,410
1,343
1,075
945
961
1,067
15,079
14,112
13,566
17
17
17
28,954
26,462
25,846
Treasury Stock
(20,289)
(16,762)
(13,552)
Capital Surplus
4,600
4,227
3,445
101
1,337
13,383
15,280
All amounts in millions
Liabilities
Current Liabilities
Accounts Payable
Short/Current Long Term Debt
Other Current Liabilities
Total Current Liabilities
Deferred Long Term Liability Charges
Total Liabilities
Stockholders' Equity
Common Stock
Retained Earnings
Other Stockholder Equity
Total Stockholder Equity
(297)
15,458
Balance Sheet
All amounts in millions
Ratio Analysis – Liquidity Ratios
2008
2007
2006
Current Ratio
1.39:1
0.80:1
1.21:1
Acid-Test Ratio (Quick)
1.18:1
0.67:1
1.01:1
Receivables Turnover1
23.70 times
23.28 times
-
Inventory Turnover
125.70 times
71.59 times
-
Year Ended December 31
• From year 2006 to 2007, current ratio decreased, but from year 2007 to 2008 current ratio
increased. Therefore, quality appeared to be fairly liquid.
• From year 2006 to 2007, Quick ratio decreased. Quick ratio seemed inadequate. From year
2007 to 2008, quick ratio increased and become more favorable.
• From year 2007 to 2008, receivable turnover increased a little, overall, it maintained high
receivables turnover rate.
• From year 2007 to 2008, inventory turnover increased. It kept a very high inventory turnover
rate . Generally, the faster the inventory turnover rate is, the less cash a company has tied up in
inventory and the less the chance of inventory obsolescence.
Ratio Analysis – Profitability and Solvency Ratios
2008
2007
2006
Profit Margin
18.34%
10.51%
16.42%
Return on Common Stockholder’ equity
30.10%
15.58%
Debt to Total Asset Ratio
52.98%
48.01%
Year Ended December 31,
46.74%
• From year 2006 to 2007, profit margin decreased, from year 2007 to 2008, profit
margin increased.
• From year 2007 to 2008, Return on common stockholder’ equity increased. Therefore,
more dollars of net income the company earned for each dollar invested by the owners.
• From year 2006 to 2007, debt to total asset ratio increased, from year 2007 to 2008,
debt to total asset ratio increased. Too higher debt to total ratio, the greater the risk that
the company may be unable to meet its maturing obligations. Therefore, if the debt to
total ratio keep increasing, it’s not good.
Statement of Cash Flows
Year Ended December 31,
All amounts in millions
Net Income
2008
2007
2006
4,313
2,395
3,544
1,208
1,214
1,250
150
1,303
(289)
16
(100)
(91)
94
(71)
Operating Activities, Cash Flows Provided By or Used In
Depreciation
Adjustments To Net Income
Changes In Accounts Receivables
Changes In Liabilities
Changes In Inventories
Total Cash Flow From Operating Activities
241
(11)
(30)
(2)
5,917
4,876
4,342
(2,136)
(1,947)
(1,742)
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures
Investments
229
-
-
Other Cash flows from Investing Activities
282
797
467
(1,625)
(1,150)
(1,273)
Dividends Paid
(1,823)
(1,766)
(1,217)
Sale Purchase of Stock
(3,371)
(2,805)
(1,984)
573
(2,265)
34
2
Total Cash Flows From Investing Activities
Financing Activities, Cash Flows Provided By or Used In
Net Borrowings 1,046
Other Cash Flows from Financing Activities
Total Cash Flows From Financing Activities
(4,115)
Effect Of Exchange Rate Changes
(96)
Change In Cash and Cash Equivalents
$82
(3,996)
123
($147)
273
(5,192)
($2,124)
Statement of Cash Flows – Operating Activities
Year Ended December 31,
All amounts in millions
2008
2007
2006
Net Income
4,313
2,395
3,544
Depreciation
1,208
1,214
1,250
150
1,303
(289)
16
(100)
(91)
Changes In Liabilities
241
94
(71)
Changes In Inventories
(11)
(30)
(2)
5,917
4,876
4,341
Adjustments To Net Income
Changes In Accounts Receivables
Net cash Provided by Operating Activities
• Cash inflow for operating activities increased 10.97% from year 2006 to 2007, and increased
21.35% from year 2007 to 2008.
• The increase from year 2007 to 2008 was mainly due to:
• Adjustments to net income increase $1,892 millions greater than the net income,
which decreased $1,149 millions.
• The increase from year 2007 to 2008 was mainly due to:
•Net income increased $1,918 millions greater than the adjustments to net income
which reduced $1,153 millions.
•Liabilities increased $147 millions
Statement of Cash Flows – Investing Activities
Year Ended December 31,
All amounts in millions
Capital Expenditures
2008
2007
2006
(2,136)
(1,947)
(1,742)
Investments
229
-
-
Other Cash flows from Investing Activities
282
797
469
(1,625)
(1,150)
(1,273)
Net Cash Used by Investing Activities
• Cash outflow for investing activities decreased 9.94% from year 2006 to 2007, and increased
41.30% from year 2007 to 2008.
• The decrease from year 2006 to 2007 was mainly related to:
• Other cash flows from investing activities, cash inflow increased $328 millions greater
than capital expenditures outflow which increased $205 millions.
• The increase from year 2007 to 2008 was mainly related to:
•Capital expenditures outflow increased $189 millions.
•Other cash flows from investing activities outflow increase $515 millions.
Statement of Cash Flows – Financing Activities
Year Ended December 31,
All amounts in millions
2008
2007
2006
Dividends Paid
(1,823)
(1,766)
(1,217)
Sale Purchase of Stock
(3,371)
(2,805)
(1,984)
Net Borrowings
1,046
573
(2,265)
34
2
273
Other Cash Flows from Financing Activities
Net Cash Used by Financing Activities
(4,115)
(3,996)
(5,192)
• Cash outflow for financing activities decreased 23.04% from year 2006 to 2007 and
increased 2.98% from year 2007 to 2008.
• The decrease from year 2006 to 2007 was mainly related to:
•Net Borrowings inflow increased $2,838 millions, greater than dividends paid and sale
purchase of stock outflow that increased $1,370 millions.
• The increase from year 2007 to 2008 was mainly related to:
•Sale purchase of stock outflow increased $566 millions, greater than net borrowings
inflow which increased $473 millions.
•Dividends paid outflow increased $57 millions.
Top Competitors
 Burger king
 YUM (KFC, Taco Bell, Pizza Hut)
 Wendy’s
 The most successful companies in the fast food industry are McDonald's,
Burger King and Yum (Pizza Hut, Taco Bell, KFC). Together these huge
conglomerates dominate the industry, employing 3.7 million people
worldwide; operating a combined total of 60,000 stores.
MCD Stock Vs. Major Competitors
- McDonald’s
- Burger king
-YUM Brands
- Wendy’s
Back to Back Comparison
MCD
BKC
YUM
Wen
Industry
Market Cap:
61.91B
2.29B
15.78B
2.05B
164.34M
Qtrly Rev Growth
-7.00%
1.00%
-6.90%
185.30%
8.00%
Revenue :
22.56B
2.55B
10.90B
2.38B
410.61M
Gross Margin :
37.55%
33.13%
24.90%
22.06%
9.23%
EBITDA :
7.39B
454.00M
2.02B
310.35M
36.35M
27.65%
13.94%
13.48%
3.76%
6.46%
Net Income :
4.25B
192.00M
1.01B
(425.41M)
N/A
EPS :
3.772
1.402
2.094
(1.512)
0.17
P/E :
14.88
12.13
16.15
N/A
14.46
PEG:
1.6
0.86
1.35
N/A
1.17
P/S :
2.69
0.89
1.46
0.08
0.42
Oper Margins :
- McDonald’s
- Burger king
-YUM Brands
- Wendy’s
- Industry
Summary
After this financial statement analysis, we learn McDonald’s
financial situation deeply.
 McDonalds is the biggest fast-food franchise in the industry.
 Its also the most profitable.
 Though the company’s profits declined in 2007, but raised in 2008. most
probably due to the down fall of economy that lead more consumer to buy
cheaper food.
 It’s a good company to invest in.