Bus 411
Assignment 3
Due Feb. 27 at the beginning of class (12:30 PM)
CHAPTER 4
PERFORMING A FINANCIAL RATIO ANALYSIS FOR MCDONALDS
CORPORATION
PURPOSE:
Financial ratio analysis is one of the best techniques for identifying and evaluating internal
strengths and weaknesses. Potential investors and current shareholders look closely at firms’
financial ratios, making detailed comparisons to industry averages and to previous periods of
time. Financial ratio analyses provide vital input information for developing an IFE Matrix.
INSTRUCTIONS:
1. On a separate sheet of paper, number from 1 to 20. Referring to McDonald’s
income statement and balance sheet (pp 31-32), calculate 20 financial ratios for
2008 (data can be found in McDonald’s 2009 Annual Report) for McDonalds. Use
Table 4-6 as a reference.
2. In a second column, indicate whether you consider each ratio to be a strength, a
weakness, or a neutral factor for McDonald’s.
TEACHING NOTES:
Ratio (2008)
Liquidity Ratios
Current
Quick
Leverage Ratios
Debt to total assets
Debt to equity
Long-term debt to equity
Times-interest-earned ratio
Activity Ratios
Fixed Assets Turnover
Total Assets Turnover
Inventory Turnover
Profitability Ratios
Gross profit margin
Operating profit margin
Net profit margin
Return on assets
Return on equity
McDonald’s
Evaluation
Price-earnings ratio
EPS
Growth Ratios
Sales Growth % (3-year)*
Net Income Growth % (3-year)*
Earnings per share Growth % (3-year)*
Dividends per share Growth % (3-year)*
*Use 2006, 2007 & 2008 Data
CONSTRUCTING AN IFE MATRIX FOR MCDONALDS CORPORATION
PURPOSE:
This exercise will give you experience developing an IFE Matrix. Identifying and prioritizing
factors to include in an IFE Matrix fosters communication among functional and divisional
managers. Preparing an IFE Matrix allows human resource, marketing, production/operations,
finance/accounting, R&D, and management information systems managers to articulate their
concerns and thoughts regarding the business condition of the firm. This results in an
improved collective understanding of the business.
INSTRUCTIONS:
1. Develop a IFE Matrix for McDonald’s.
2.
What strategies do you think would allow McDonald’s to capitalize on its major
strengths? What strategies would allow McDonald’s to improve upon its major
weaknesses?
TEACHING NOTES:
The steps for completing an IFE Matrix are as follows:
1. List key internal factors as identified in the internal-audit process. Use a total of ten to
twenty internal factors, including both strengths and weaknesses. List strengths first and
then weaknesses.
2. Assign a weight that ranges from .0 (not important) to 1.0 (all important) to each factor.
The weight assigned to a given factor indicates the relative importance of the factor to
being successful in the firm’s industry. The sum of all weights must equal 1.0.
3. Assign a 1-4 rating to each factor to indicate whether that factor represents a major
weakness (1), a minor weakness (2), minor strength (3), or major strength (4). Strengths
must receive a 3 or 4 and weaknesses must receive a 1 or 2.
4. Multiply each factor’s weight by its rating to determine its weighted score for each
variable.
5. Sum the weighted scores for each variable to determine the total weighted score for the
organization.