Annual Report
McDonald’s Corporation
Lu Jiang
Section:MW 6:00-9:00pm
http://www.aboutmcdonalds.com/content/d
am/AboutMcDonalds/Investors/Investor%20
2013/2012%20Annual%20Report%20Final.p
df
Introduction
• Chief executive officer: Don Thompson
• Location of home office: 2111 McDonald's Dr., Oak Brook,
IL 60523
• Ending date of latest fiscal year: December,31 2012
• Principal products: hamburgers, cheeseburgers, chicken,
french fries, breakfast items, soft drinks, milkshakes and
desserts
• Main geographic area of activity: United States, Europe, and
APMEA
Audit report
• Independent auditors: ERNST & YOUNG LLP
• The auditors state that the financial
statement of McDonald’s corporation at
December 31 2012 and 2011 and its cash flow
in the recent three years are correspond to U.S.
general accepted accounting principles.
Moreover, company has a effective internal
control over 2012’s financial report according
to the COSO criteria.
Stock Market Information
• Stock price: $97.11
• Twelve month trading range of the company’s
stock:$83.31 - 103.70(from yahoo finance)
• Dividend per share:$2.87
• Date of the above information:
Stock price: June 21,2013
twelve moth trading range: June 21, 2013
dividend per share: December 31,2012
• My opinion: I think it is better to hold the stock.
The price of the stock is fluctuating.
Income Statement
Income Statement
In million
2012
2011
Gross profit
21248.8
20838.8
Income from operations
25111.8
24612.3
Net income
5464.8
5503.1
Income statement
• It is most like a multistep format
• The company has an increasing in the net
income at the end of the year of 2011 but has
a decrease at the end of the year of 2012. The
company is in good operation because its
operating income continues to increase
through years.
B
A
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Balance sheet
2012 (in
millions)
Current
Assets:
4922.1
Current
Liabilities
3403.1
Other assets
5787.2
Long-term
Liabilities
16689.8 (1)
Property and
equipment
24677.2
Shareholders’
equity
15293.6
Total Assets
35386.6
Total
Liabilities and
shareholders
equity
35386.6
Total assets = Total Liabilities+ shareholders equity
Calculation :
(1) long-term liabilities=long-term debt +other long-term liabilities+ deferred income tax
16689.8=13632.5+1526.2+1531.1
Balance sheet
2011( in
millions)
Current
Assets:
4403.0
Current
Liabilities
3509.2
Other assets
5752.4
Long-term
Liabilities
15090.5 (1)
Property and
equipment
22834.5
Shareholders’
equity
14390.2
Total Assets
32989.9
Total
Liabilities and
shareholders
equity
32989.9
Total assets = Total Liabilities+ shareholders equity
Calculation :
(1) long-term liabilities=long-term debt +other long-term liabilities+ deferred income tax
15090.5=12133.8+1612.6+1344.1
Balance sheet
Company’s current assets and intangible assets continue to increase
through years. It seems that the company has a lot of potential to
create values in the future. Company’s property and equipment
increases through years, and is the largest part of increasing in assets.
This means the company tends to open more restaurants. Long term
investments decrease a little in the year of 2012. In general, company’s
total assets gradually increase through years. It accumulates a lot of
things to generate value in the future.
Company’s current liabilities gradually increase except current
maturities of long term debt suddenly decrease to 0, which leads to the
decreasing in the total current liabilities. This means company paid off
a lot of its debt in 2012 and also it has less debt in 2012. Company’s
long-term liabilities increase gradually through years to years.
Company’s retained earnings increase mostly in year 2012 in
shareholder’s equity.
Statement of cash flows
Cash Flows
In millions
2012
2011
Operating
7150.1
8341.6
Investing
(2570.9)
(2056.0)
financing
(4533.0)
(3728.7)
Statement of cash flows
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Cash flow from operations increases in the past
two years.
The company is growing through
investing activities because cash used
for investing activities increases in the
past two years.
In year 2012, the primary source of
financing for the company is long-term
financing issuances.
Overall, cash and equivalents decreases in the
year of 2012 but increases in the year of 2011.
Accounting policies
Accounting policies:
(1)revenue recognition: consists sales by companyoperated restaurants and fees from franchised restaurants
operated by conventional franchisees. Sales are recognized
on a cash basis.
(2)goodwill: represents the excess of cost over the net
tangible assets and identifiable intangible assets of
acquired restaurant businesses.
(3)Property and equipment: are stated at cost, with
depreciation and amortization provided using the straightline method
(4)long-lived assets: Long-lived assets are reviewed for
impairment annually in the fourth quarter and whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Topics in notes
Nature of business
Consolidation
Estimates in financial statements
Revenue Recognition
Foreign currency translation
Advertising costs
Share-based compensation
Goodwill
Long-lived assets
Property and equipment
Fair Value Measurements
Certain Financial Assets and Liabilities Measured at Fair Value
Non-financial assets and liabilities measured at fair value on a nonrecurring basis
Certain financial assets and liabilities not measured at fair value
Financial instruments and hedging activities
Financial Analysis
Liquidity Ratios
2012
2011
Working capital
(1)1519
(2)893.8
Current Ratio
(3)1.45
(4)1.25
Receivable turnover
(5)20.35
(6)21.49
Average days’ sales
uncollected
(7)17.64
(8)16.98
Inventory turnover
(9)52.98
(10)54.41
Average days’ inventory on
hand
(11)6.89
(12)6.71
Operatubg cycle
(13)27.24
(14)28.2
Comments: McDonald’ working capital and current ratio all increase a lot, which means
McDonald has more ability to pay off its current debt. Receivable turnover decreases a
little, which increases the average days’ sales uncollected. McDonald accounts collection’s
ability reduce a little in 2012, which implies the potential problem in credit and collection
policies. McDonald maintains high inventory turnover but the number decreases a little in
2012, which results in the increase in average days’ inventory on hand. The increasing of
days on hand is not big and it is reasonable for the small difference between years. This
means in 2012, McDonald maintains its good ability to sell inventories. The operating cycle
decreases a little in 2012, which indicates faster turnover on inventory.
Basic information:
Current assets(2012)=4922.1
(2011)=4403
Current liabilities(2012)=3403.1
(2011)=3509.2
Sales(2012)=27567 (2011)=27006
Cost of good sold(2012)=6318.2 (2011)=6167.2
receivable=(2012)1375.3 average for 2012=(1375.3+1334.7)/2=1355
(2011)=1334.7 average for 2011=(1334.7+1179.1)/2=1256.9
(2010)=1179.1
Inventory(2012)=121.7
average for 2012=(121.7+116.8)/2=119.25
(2011)=116.8
average for 2011=(116.8+109.9)/2=113.35
(2010)=109.9
Calculation:
(1) 4922.1-3403.1=1519
(3)4922.1/3403.1=1.45
(5)27567/1355=20.35
(7) 365/20.35=17.94
(9)6318.2/119.25=52.98
(11)365/52.98=6.89
(13)20.35+6.89=27.24
(2)4403-3509.2=893.8
(4)4403/3509.2=1.25
(6)27006/1256.9=21.49
(8)365/21.49=16.98
(10)6167.2/113.35=54.41
(12)365/54.41=6.71
(14)21.49+6.71=28.2
Profitability ratios
2012
2011
Profit margin
(1)0.198
(2)0.204
Asset turnover
(3)0.81
(4)0.83
Return on assets
(5)0.16
(6)0.17
Return on equity
(7)1.80
(8)1.88
Net income (2012)=5464.8
(2011)=5503.1
Total assets(2012)=35386.6
(2011)=32989.9 (2010)=31975.2
average for 2012=(35386.6+32989.9)/2=34188.25
average for 2011=(32989.9+31975.2)/2=32482.55
Revenue (2012)=27567
(2011)=27006
Shareholders’ equity(2012)=15293.6 (2011)=14390.2
Calculation:
(1) 5464.8/27567=0.198
(2)5503.1/27006=0.204
(3) 27567/34188.25=0.81 (4)27006/32482.55=0.83
(5)0.198*0.81=0.16
(6)0.204*0.83=0.17
(7)27567/15293.6=1.80
(8)27006/14390.2=1.88
Comments on profitability ratios
• McDonald profit margin keeps constant through 2011
and 2012, which implies its stable efficient ability to
use its resources. Its assets turnover ration is also
constant and only decreases a little bit, and its assets
increases a lot, which means McDonald maintains its
ability to generate sales with increasing amount of
assets. Moreover, return on assets keeps constant.
McDonald keeps generate profit in the same ratio with
increasing assets and this means that it has good
operating in 2012. McDonald maintains its high return
on equity ratio and this means it keeps its ability to
generate cash internally.
Market strength ratios
2012
2011
Price/earnings per share
(1)16.46
(2)19.74
Dividend yield
(3)3.3%
(4)2.5%
Price: December,31,2012 = 88.21
December,30,2011=100.33
Earning per share(2012)=5.36 (2011)=5.27
Dividends per share(2012)=2.87 (2011)=2.53
Calculation:
(1)88.21/5.36=16.46
(2)100.33/5.27=19.04
(3)2.87/88.21=0.033
(4)2.53/100.33=0.025
Comments:
McDonald maintain a normal P/E ratio and it decreases in 2012, which indicates
a decreasing in the confidence in the company’s ability to maintain earnings
growth, or indicates there was inflation in 2012. Dividend yield ratio increases in
2012, which means it become more attractive for investors.
Solvency ratio
Debt to equity
2012
2011
(1)1.31
(2)1.29
Financing gap
(3)38.73
(4)28.29
Statistics:
Shareholders’ equity(2012)=15293.6 (2011)=14390.2
Total liabilities and SHE(2012)=35386.5 (2011)=32989.2
Total liabilities(2012)=35386.5-15293.6=20092.9
(2011)32989.2-14390.2=18599
Cost of good sold(2012)=6318.2 (2011)=6167.2
Accounts payable (2012)=1141.9 (2011)=961.3
DPO (2012)=1141.9/6318.2*365=65.97 (2011)=961.3/6167.2*365=56.89
Notes payable=
Calculation:
(1)20092.9/15293.6=1.31
(2)18599/14390.2=1.29
(3) 65.97-(20.35+6.89)=38.73 (4)56.89-(21.49+6.71) =28.69
Comments:
Debt to equity ration of McDonald increase a little, and the numbers are all larger
than 1, which means creditors are in control of the company. Financing gap
maintains positive during 2011 and 2012, and even higher in 2012, which means
that McDonald keeps a good ability of self-financing.
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Industry Situatio & Company Plans
McDonald is the worlds’ biggest restaurant chain. The company serves to provide
people with delicious fast food and high-qualified service. McDonald maintains its good
internal controls and gradually enlarge its size through years. Through its annual report,
McDonald’s future goals are to take risk, maintains its priorities, and improve its
products, services and customer experience. In its letter for shareholders, McDonald
claims its potential opportunity to have more growth.
On June 20, 2013, McDonald announced that it may soon begin franchising its
restaurants of being family-owned and operated. Due to this plan, like what the
company said in tits annual report, McDonald would like to improve its customer
experience and service. Moreover, franchising its restaurants can also improve its
products and services because the plan can motivate people, who will be franchised, to
improve their own business.
On June 7, 2013, The New York Times reports that McDonald tends to shift their target
consumers from 18 to 30 year old people to younger generation. This means that
McDonald may have more new products that are millennial favored. They may also
provide more services for youth.
Overall, McDonald targets to provide better service, products. It also tends to change its
operation scheme and target consumers.
Citation:
“McDonald's Considering Franchising Restaurants After 70 Years Of Being Family
Owned And Operated”, The onion, June 20 2013
“Restaurant Chains Try to Woo a Younger Generation”, The New York Times, June 7,
2013
Executive Summary
• McDonald’s Corporation is a Centralized, International
company. It keeps a tight grasp on operations, cost and
quality. McDonald’s overseas investment relies heavily
on franchising. It has a great potential to improve its
business and gain more. However, McDonald needs to
face the risk of its change in operation strategy.
Resources:
McDonald’s 2012 Annual Report Final
“McDonald's Considering Franchising Restaurants After 70 Years Of Being Family Owned A
nd Operated”, The onion, June 20 2013
“Restaurant Chains Try to Woo a Younger Generation”, The New York Times, June 7, 2013