November 22, 2014
Consumer Goods
McDonald’s
Ticker: MCD
Current Price: $97.08
Recommendation: Hold
Price Target: $108.35
Investment Thesis

Expanding international market increases the overall profitability of MCD
and secures long-term growth of both revenue and profits.

Innovating new customer products as well as changing organization
structure will facilitate the further growth of MCD.

Because of its reputation and large market share, MCD offers investor
consistent return and potential long-term growth with limited risk.
Covering Analysts: Jing Li
li5@uoregon.edu
1
University of Oregon Investment Group
University of Oregon Investment Group
Business Overview
Figure 1: The first McDonald’s Restaurant
History of McDonald’s
In 1940, Dick and Mac McDonald opened McDonald’s Bar-B-Q restaurant on
Fourteenth and E Street in San Bernardino, California. It was a typical drive-in
featuring a large menu and carhop service. Eight years later, in 1948, McDonald
reopened its restaurant in December and renewed the menu to include
hamburgers, cheeseburgers, soft drinks, milk, coffee, potato chips and a slice of
pie. This was the beginning of McDonald’s.
Source: Google Images
Figure 2: When the first McDonald’s Restaurant
Appears in Each Region
Source: Google Images
Figure 3: Major Players in Fast Food Industry
After the his visit to McDonald’s in 1954 and signing the first franchise
agreement, Kroc opened his first McDonald’s restaurant in Des Plaines, IL in on
April, 1955. The red-and-white building style as well as the Golden Arches,
which was designed by Architect Stanley Meston, were both officially
introduced to public. As a successful result, McDonald’s earned $366.12 in the
very first day of operation and expanded its market to have more than 700
McDonald’s restaurants in the United States by 1965. During the same year,
McDonald’s launched its initial public offer at a price of $22.50 dollar per share.
Only two years later, the first international McDonald’s restaurants opened in
Canada and Puerto Rico.
Today, the McDonald’s Corporation is the world’s largest chain of hamburger
fast food restaurants, operating 35,429 restaurants within 119 countries and
serving around 68 million customers all around the world. In addition to the
predominant sell of hamburgers, chicken sandwiches, French fries, soft drinks,
breakfast products and desserts, McDonald’s also steps into the market of salads
and other food for vegetarians, reflecting its adaptability to change its menu
according to the regions where restaurants operate and to make its products
more similar to local market and customers. For example, McDonald’s sells beer
in Germany and other Western European counties, and in Indonesia, McRice is
provided in McDonald’s restaurants.
By the end of 2013, based on its 10-K filling, McDonald’s reached a total
revenue of $28,105 million from its systemwide restaurant business with a net
income of $5,586 million in total.
Revenue
McDonald’s operates its business by two models; franchised restaurants and
company-operated restaurants. Of the 35,429 restaurants in 199 countries at the
end of 2013, 6,738 restaurants are operated by McDonald’s company directly
and the remaining 28,691 are franchised restaurants, which includes 20,355
franchised to conventional franchisees and 8,336 licensed. Of the 8,336 licensed
restaurants, 4,747 are licensed to development licensees and 3,589 are licensed
to foreign affiliates (primarily licensed to Japan).
Even though the revenue per restaurant generated by a company-operated
restaurant are much greater than by a franchised restaurant, McDonald’s focuses
on the development of its operation of franchised restaurants for several reasons
below:
1) Franchising is essential for long-term revenue growth and for improving its
overall profitability.
2) Franchising is a more efficient way for McDonald’s to expand its business to
new international markets.
3) A large amount of franchised restaurants enhances McDonald’s brand and
image, particularly in foreign developing countries, and competes with the
growth of McDonald’s major competitors.
Source: Google Images
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Figure 4: McDonald’s Franchised Restaurants
Source: Google Images
Figure 5: McDonald’s Revenue Distribution
by Geographic Segments
The difference between conventional franchise arrangement and development
licensed arrangement is the capital investment that McDonald’s contributes.
Under the agreement of conventional franchise, franchisees are responsible for
an initial payment of 40% of the total cost for a new restaurant or 25% of the
total cost of an existing restaurant (This data only applies to the U.S. segment.
There is no reliable data available for other foreign countries). In addition,
McDonald’s owns the land and building in order to secure a long-term leases for
franchised restaurant site as well as the company-operated site. By doing so
shall McDonald’s be able to maintain long-term growth, managed expenses and
help franchisees with business operation. On the other hand, under the
agreement of development license, the licensees are responsible to pay for the
entire investment.
McDonald’s revenue consists of sales generated by company-operated
restaurants and fees paid by franchised restaurants. In 2013, the revenues from
company-operated restaurants and franchised restaurants were $18,875 million
and $9,231 million respectively.
Looking forward, given the fact of the mature status in the fast food industry and
the determination of expanding new international market, McDonald’s will be
still able to keep stable growth rate around 2% in the future and return long-term
investment value for its investors.
Business Geographic Segments
McDonald’s operates business in four different geographic segments, including
the United States of America (US), Europe, Asia/Pacific, Middle East and
Africa (“APMEA”) and other countries. In 2013, the revenues generated from
US, Europe, APMEA and other countries are $8,851 million, $11,300 million,
$6,477 million and $1,478 million respectively.
Source: UOIG Report
Due to the saturated fast food market and stable market share in the Unites
States, McDonald’s does not expect a big increase in revenue in the US
segment. The same situation applies to the Europe segment. In addition,
Europe’s market also suffered from a stagnant GDP growth and that eliminate
the potential of high revenue growth in this segment. The biggest potential
opportunity for revenue growth lies within the APMEA segment, particularly in
China. The Chinese fast food industry is expected to growth at a rate of 7% and
McDonald’s decided to open between 100 and 150 restaurants per year for the
next decade.
Figure 6: 2014 Fast Food Products Segmentation
Industry
Overview
Overall the fast food industry consists of restaurants that provide fast, cheap and
reliable food for customers. Consumers can purchase food by consuming food
on-site, taking food out or requesting food delivered. The revenue is usually
generated by company-operated restaurants and franchised restaurants. In order
to maintain profitability, players in this market usually focus on high-volume,
low-cost and fast-prepared products.
Source: IBISworld
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Figure 7: Consumer Spending In the U.S.
During the last decade, one notable change in this industry is that major
companies started to focus on “luxury” products (relate high-price products with
better quality) in order to meet the need of different consumers. In addition, the
fast food industry is very sensitive to input costs and different geographic
segments, meaning that the growth rate of a particular region relies on the
characteristic of that region. As a result, companies in the fast food industry
adjust their products and menus in order to meet the local favor and need as well
as to maximize revenue in each segment.
In addition, operating more franchised restaurants has become a major way to
increase a company’s revenue due to its less expensive capital investment. On
the other hand, the expensive costs of building new company-operated
restaurants make mature companies more favorable in this industry than small
and developing companies.
Source: IBIS World
Figure 8: Health-Eating Index in the U.S.
Macro factors
There are three major macro factors in the fast food industry—consumer
spending (GDP growth), health eating index (consumer behaviors) and product
costs (input costs).
Consumer spending:
The performance of fast food industry is associated with the overall economic
growth. Overall during economic recession, consumers will consume similar
amount of fast food due to its low cost, making fast food a good choice for
consumers to survive the economic downside.
Health eating index:
The fast food industry is negatively correlated to the health eating index,
meaning that a higher health eating index reflect people’s will to consumer more
healthier food so that it reduces the amount of fast food that consumed by
consumers. However, during the last decade, the fast food industry has become
less sensitive to the change of health eating index since the fast food companies
have begun to add more health and luxury food into their menu.
Source: IBIS World
Product costs:
Since fast food is defined as high-volume, low-price and fast-prepared food, it is
sensitive to the change of input cost, such as agricultural cost. Agricultural costs
are driven up by the price of oil. The price of oil is likely to increase, resulting in
higher input costs for the fast food industry.
Figure 9: Crowd in front of a KFC in China
Competition
“McDonald’s restaurants compete with international, national, regional and local
retailers of food products. The Company competes on the basis of price,
convenience, service, menu variety and product quality in a highly fragmented
global restaurant industry” (the 2013 10-K filling of MCD).
Source: Google Images
The major competitors of McDonald’s in the fast food industry includes
Starbucks Corporation, Yum Brands Inc, Chipotle Mexican Grill Inc, Burger
King Worldwide, Darden Restaurants, Subway, Wendy’s Co and etc. In the
domestic market, McDonald’s has a dominative position with a share of 17.8%
of the total market, which is 11.1% higher than the second largest fast food
company—Yum!Brands Inc—in the US segment. However, in APMEA
segment where represents a high potential of growth, Yum!Brands Inc has the
same market power as McDonald’s. In China, Yum!Brands Inc even holds the
largest market share of 7% with 7,170 restaurant in operations and also already
established a special Chinese fast-food brand, East Dawning, for the Chinese
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Figure 10: McDonald’s Rejects GMO Potatoes
market in order to take advantages of the fast-growing fast food market. In
comparison, McDonald’s only hold a market share of 1.5% of the total and
established less than 2,000 restaurants. The competition in China, as well as the
entire APMEA, is where McDonald’s will focus their attention going forward.
Strategic Positioning
Suppliers
Source: New York Times
Figure 11: McDonald’s Overcomplicated Menu
Source: Google Images
McDonald’s, like other fast food companies, does not supply their foods. The
company relies on different reputable suppliers to provide high-quality foods
and meet the high standard of health for its consumers. Due to the large
economies scale, McDonald’s is able to purchase supply food at a very low
price, which is reflected in its high contribution margin. In addition,
McDonald’s also has the power to control the quality of supply foods and
recently McDonald’s rejects to use genetically modified potato produced by J.R.
Simplot Co, which is one of its oldest suppliers, due to the potential health issue
and concern from public.
Innovations and Simplifications:
During the last decade, McDonald’s has introduced a wide range of healthier
food, such as salads and soup, for its customers in order to meet the change of
consumer behavior. The McCafe coffee is another high-end product that
McDonald’s launches to compete with Starbucks and other companies in the
breakfast segment. Additionally, McDonald’s has been consistently promoting
its “Dollar Menu & More” products, which have items priced from $1.00 up to
$5.00.
Furthermore, McDonald’s menus have been consistently changed and innovated
(grown by 70% since 2007) to provide more value products for its consumers.
Recently there is a concern about McDonald’s overcomplicates its menu and
consequently decreases its revenue. Starting in 2015, McDonald’s will continue
its innovation by simplifying its menu and making it more consumer-friendly.
McDonald’s also continues its innovation to drive revenue growth by
differentiating customers experience from other stores. By accepting Apple pay
in all the restaurants in the US segment, McDonald’s, also with the aid of its
investment in NFC (near-field communication), makes food and beverage
purchase easier and faster than before.
Figure 12: McDonald’s and RMHC Celebrate
40 Years of Supporting Children and Families
Franchisees
McDonald’s franchised restaurant model has enabled it to receive stable stream
of revenue from the initial fee and rent as a percentage of sales from a
franchised restaurant with a less capital-intensive cost. Given the fact that
franchised model is an efficient way to enlarge its market share with less
expensive costs, McDonald’s will continue to increase the number of Franchised
restaurants, particularly in China in order to outpace other major competitors in
that segment.
Marketing
McDonald’s spent about $808.4 million on advertising in order to keep the
Golden Arches in the public’s eye. The majority of the expense contributes to
radio and television advertising primarily in the US segment.
Source: McDonald’s Newsroom
Furthermore, McDonald’s also enhances its image and connects with more
potential consumers by committing in various programs for public welfare. For
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Figure 13: Russia shut down McDonald’s
restaurants in different locations
instance, McDonald’s and RMHC celebrated 40 years of supporting Children
and Families at October 07, 2014 and claimed to continue to commit it to the
support for families and children. This approach enables McDonald to increase
its awareness among the public in a way other than traditional advertisement.
Government Regulations
“Local, state and federal governments have adopted laws and regulations
involving various aspects of the restaurants business including, but not limited
to, advertising, franchising, health, safety, environment and taxes (MCD 2013
10-K filling).” McDonald’s have been successfully complying with all existing
regulations and administrative rules in its business segments. However, the
unpredictability of addition regulations and political relations make the company
uncertain about its future from political aspect.
Source: Google Images
Business Growth Strategies
Figure 14: McCafe
Overall, compared to 2013, McDonald’s does not expect a significant change in
the overall market given the stagnant growth rate of the overall fast food
industry, as well as the stable GDP growth rate, in McDonald’s primary
operating segments (US and Europe). Due to the difference maturity of each
segments and distinct potential of revenue growth, McDonald’s expect to
execute different strategies to drive sales and optimize consumer satisfaction.
U.S.
Source: Google Images
The main focus on the domestic market is to improve restaurant execution, offer
better-value products for customers and increase consumer satisfaction.
McDonald’s plans to simplify its overcomplicated menu and balance the
affordability and high-quality products. Furthermore, McDonald’s will also
emphasize its expansion in coffee market through McCafe combined with both
existing and new breakfast food for its customers. In addition, McDonald’s will
continue to open new restaurants and to reimage existing restaurants.
Europe
Figure 15: McDonald’s accepted Apply Pay in all
Restaurants in the U.S. for More Convenience
The main strategy of McDonald to increase sales in Europe is to optimize the
menu by providing more health and premium food, leveraging from the good
performance of McCafe to drive breakfast’s sales and offering more
convenience for its consumers. In order to satisfy consumers, McDonald’s
decided to improve drvie-thrus, extend operating hours and operate 300 more
restaurants in 2014 and reimage 400 existing restaurants.
APMEA
“APMEA’s growth opportunity includes menu variety, convenience, value
evolution and restaurant expansion (2013 MCD 10-K filling).” McDonald’s
plans to add a “mid-tier” food to drive sale and fill the gap between basic-level
food and luxury-level food. Due to APMEA’s huge growth potential,
McDonald’s will prioritize opening approximately 800 new restaurants, with
about 300 in China, to meet the fast-growing need of local customers.
Management and Employee Relations
Present:
Source: Google Images
Don Thompson—President and Chief Executive Officer
Thompson joined McDonald’s as an electrical engineer in 1990 and has held
various leadership positions such as President of McDonald’s USA and Global
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Chief Operating Officer, before he was promoted to be the President and CEO.
Thompson also has directed global strategy and operations for different
segments of McDonald’s.
Figure 16: McDonald’s Executive Compensations
In July 1, 2012, Thompson was selected to be President and CEO by the Board
of Directors after Jim Skinner’s retirement. Thompson continues McDonald’s
focus on optimizing the menu, modernizing the customer experience and
widening the accessibility to potential customers.
Retired:
Source: Morningstar
Figure 17: McDonald’s and Starbucks’ CEOs
leading the compensation in fast food industry
Source: Yahoo Finance
Jeff Stratton—former McDonald’s USA President
Stratton joined McDonald’s in his hometown of Detroit in 1973 and began his
career in McDonalds’ as a crewmember. In December 2012, Stratton was
promoted to be the President of McDonald’s USA and decided to retire from the
position at August 22, 2014.
During his period as the President of McDonald’s USA, Stratton oversaw the
operation of approximately 34,000 restaurants globally and dedicated to product
innovation, employee training, performance evaluation and redesign of
McDonald’s mission.
After Stratton’s retirement, Mike Andres, who served a successful career as the
President of Central Division in the U.S., was promoted to be the new President
of McDonald’s USA.
Tim Fenton—former Chief Operating Officer
Fenton decided to retire from his position as the Chief Operating Office,
effective October 1, 2014. During this transition period, Fenton will continue to
act as the COO and focus on the restaurant portfolio optimization and business
initiatives.
Fenton joined McDonald’s in 1973 and began his career in McDonald’s as a
crewmember in Utica, N.Y. During his 41 years in McDonald’s, he once held
different executive positions such as Senior Vice President of Southeast AsiaPacific, Middle East and Africa and the Vice President of McDonald’s Middle
East Development Company.
Management Guidance
As a guideline to measure and drive its business performance, McDonald’s
decide to set up long-term financial targets of constant currency as bellows:
1) Systemwide sales growth of 3% to 5%
2) Operating Income growth of 6% to 7%.
3) ROIIC in the high teens.
Based on the performance in 2013, both systemwide sales and growth felt short
compared to the guidelines and only ROIIC remained performing strong as
11.4% for one-year ROIIC and 20.2% for three-year ROIIC.
Portfolio Strategy
Tall Firs Portfolio
170 shares were purchased for Tall Firs Portfolio at a price of $76.93 with a total
cost basis of $13,078. The market value of the 170 shares of MCD stock is
approximately $16,390, which generates a return of 25.32% and weights as
1.58% of the total portfolio.
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Svigal’s Portfolio
The Svigal’s portfolio currently holds 20 shares of the MCD stock that were
purchased at a price basis of $76.13 per share on August 11, 2010. Based on the
market value of McDonald’s stock, the 20 shares contribute a return of 26.63%.
DADCO Portfolio
There are no shares of McDonald’s in this portfolio.
Figure 18: McDonald’s and its Major Competitors
in Chinese Fast Food Market
Recent News
McDonald’s China Challenge: Rising Competition
October 22th, 2014
The news points out that McDonald’s has recently faced some challenges to
expand its market in China as fast as the company expects due to the local fast
rivals like Dico’s, which is operated by Taiwanese TingHsin International
Group, expanding cross China. In some less competitive cities in China,
McDonald’s has to face another fast-growing local fast food company named
Hua Lai Shi Catering Management & Service Co, which is operating
approximately 3,000 restaurants selling fried chicken and French fries in China.
Source: IBIS world
Figure 19: McDonald’s and the China Food
Scandal
This represents a true potential downside of McDonald’s expansion in Chinese
market. Not only has Yum!Brands Inc acquired the largest market share of
Chinese market, but also local fast food companies are fast expanding their own
market shares by operating new restaurants and introducing their new products
that are designed to meet local favors.
McDonald’s to Open First Restaurant in Kazakhstan
November 12th
“McDonald’s Corp. is entering the Kazakhstan market, with its first store in the
former Soviet Republic expected to open next year, the company said
Wednesday. The Oak Brook, Ill., fast-food restaurant chain, the world’s largest
restaurant company, said Kazakhstan “offers much development and growth
potential.”—Wall Street Journal
APMEA represents the biggest potential for revenue growth. Besides opening
more new restaurants in China and other existing markets, McDonald’s also
decides to expand its business to those countries in which McDonald’s has no
business operating.
Source: Google Images
Catalysts
Upside



Figure 20: McDonald’s Restaurants Compared
to YUM!Brands’s Restaurants in China

The APMEA area, particularly China, presents a big potential for future
revenue growth.
High-quality products will allow McDonald’s to attract consumers who
have health-eating behavior and optimize profits.
The less-capital-intense franchised restaurants will provide a stable
stream of revenue for McDonald’s.
The health eating index will not be fast growing and even dropping in
the U.S segment.
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Downside




Stagnant growth rate of fast food industry in primary segments,
particularly in U.S. segment.
Increasing competition in Chinese market, which represents a big
potential of revenue growth, with Yum!Brand.Inc and other local fast
food companies.
Uncertainty of government regulations and administrative rules.
Heath-eating behavior will eventually limit McDonald’s growth.
Comparable Analysis (30%)
Figure 21: Coca-Cola Company’s Logo
When deciding comparable companies for McDonald’s, I looked at six different
metrics, including growth rates, Beta, market capital, debt/equity, similar
products and brand equity. Due to the largest size and mature status of
McDonald’s, it is difficult to find a very good comparable in the fast food
industry. Therefore, I searched comparable companies in the beverage industry,
which is the most related one with fast food industry. After searching through
the beverage industry, I also looked at other industries like department stores
industry.
However, even though it is difficult to pick a great comparable company in the
fast food industry, some fast food companies, which have direct competition,
similar D/E ratio, similar Beta and similar products to McDonald’s, should also
be under consideration for take a small weight of the comparable portfolio.
Therefore, after making all the consideration, I generated a list of comparable
companies as below:
The Coca-Cola Company (KO)–30%
Source: Google Images
Figure 22: PepsiCo’s Logo
“The Coca-Cola Company, a beverage company, manufactures and distributes
coke, diet coke, and other soft drinks worldwide. The company primarily offers
nonalcoholic beverages, including sparkling beverages and still beverages. The
Coca-Cola Company sells its products primarily under the Coca-Cola, Diet
Coke, Coca-Cola Light and etc.”—Yahoo Finance
Coca-Cola is weighted highest because of its similar revenue growth rate. In
addition, Coca-Cola has a very similar beta, as well as similar market capital and
D/E ratio, compared to McDonald. The Coca-Cola brand is highly recognized
by the public, reflecting that it also has a comparable brand and reputation to
McDonald’s. Furthermore, McDonald’s is the largest customer for Coca-Cola
Company and they have been helping each other to grow since 1955. Therefore,
I weighted Coca-Cola as 30% of the total.
PepsiCo (PEP)—25%
“PepsiCo, Inc. (PepsiCo) is a global food and beverage company. Through the
Company's bottlers, contract manufacturers and other partners, the Company
makes, markets, sells and distributes a range of foods and beverages in more
than 200 countries and territories. PepsiCo is organized into four business units:
PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo
Europe and PepsiCo Asia”—Google Finance
Figure
23:Google
Target’s
Logo
Source:
Images
PepsiCo was weighted as 25% of the total primarily because of its similar
growth rate of revenue, EBITDA and EPS compared to McDonald’s. Compared
to Coco-Cola, Pepsi has a much smaller beta but more similar size in terms of
either market capital or enterprise value. In addition, I consider Coca-Cola and
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PepsiCo have the same brand equity. The reason why I weighted PepsiCo for
25% (5% lower than KO) is that PepsiCo has no business overlap with
McDonald’s.
Target Corporation (TGT)—25%
“Target Corporation operates general merchandise stores in the United States
and Canada. It offers household essentials, including pharmacy, beauty, personal
care, baby care, cleaning, and paper products; music, movies, books, computer
software, sporting goods, and toys, as well as electronics that consist of video
game hardware and software; apparel and accessories. As of September 15,
2014, the company operated 1,925 stores, including 1,795 stores in the United
States and 130 stores in Canada.”—Yahoo Finance
Figure 24: YUM! Brands, Inc’s Logo
I allocated 25% of the total weight to Target due to its similar revenue growth
rate and enterprise value. Even though Target is not operating its business in fast
food industry. However, Target does sell certain amount of fast and frozen food
so that it still has certain similarity of business with McDonald’s. In addition, I
choose Target rather than Wal-Mart to be one of the comparable companies
because Target offers a much more similar size of enterprise value to
McDonald’s than Wal-Mart. Also Target has more similar brand equity with
McDonald’s compared to Wal-Mart.
YUM!Brands, Inc (YUM)—15%
“YUM! Brands, Inc., together with its subsidiaries, operates quick service
restaurants in the United States and internationally. It operates in six segments:
YUM Restaurants China, YUM Restaurants International, Taco Bell U.S., KFC
U.S., Pizza Hut U.S., and YUM Restaurants India. As of August 11, 2014, it
operated approximately 40,000 restaurants in 125 countries and territories
primarily under the KFC, Pizza Hut, and Taco Bell brands, which specialize in
chicken, pizza, and Mexican-style food categories.”—Yahoo Finance
Source: Google Images
Figure 25: Wendy’s Logo
Source: Google Images
YUM!Brands, Inc is weighed as 15% of the total because it offers similar
products, Beta, brand equity and debt/equity ratio with McDonald’s. Even
though YUM!Brands has higher growth rate than McDonald’s, it is still a good
comparable company since it is the strongest competitor of McDonald’s if we
consider both domestically and internationally. Therefore, after considering all
the metrics, I decided to sign 15% of the total weight to YUM!Brands, Inc.
Wendy’s (WEN)—5%
“The Wendy’s Company, through its subsidiaries, owns and franchises Wendy’s
restaurant system. The company is involved in operating, developing, and
franchising a system of quick-service restaurants. As of March 25, 2014, its
restaurant system included approximately 6,500 restaurants, of which
approximately 1,000 were company-operated restaurants in the United States
and 28 countries.”
Wendy’s only receives 5% of the total weight for several reasons. First,
Wendy’s size is tiny compared to McDonald’s, despite the fact that Wendy’s is
one of the fast food companies that sells the most hamburgers. Second, Wendy’s
expected revenue growth in 2015 is -5.6%, which is ugly compared to other
comparable companies and McDonald’s. Nonetheless, Wendy’s will expect its
revenue growth to be 1.6% in 2016. Therefore, even though Wendy’s offer
similar products and beta, I give Wendy’s only 5% as the total weight.
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Figure 26: The Growth Rate of Fast Food
Industry in the U.S.
Discounted Cash Flow Analysis (70%)
Revenue Model
In my revenue model, I broke the market into four different geographic
segments, which consisted of US, Europe, APMEA and other countries, and
projected future revenue growth rate for each segment. Eventually I summed the
revenues generated by each segment to determine the total revenue and overall
revenue growth rate. For each different segment, I used different method to
project its growth rate of revenue.
Source: IBISworld
Figure 27: The GDP Growth Rate in Europe.
Source: IMF
Figure 28: The Growth Rate of Fast Food Industry
in China
Source: IBIS world
For US segment, I looked at the estimated growth rate of fast food industry,
which is approximately 2% for the next several years, and the consumer
spending index as well as the health-eating index. The Consumer Spending
index is predicted to be approximately between 2% and 3% until 2020, which is
very similar to the fast food industry growth rate. In addition, the Health-Eating
Index will roughly remain identical from 2014 to 2020, meaning that U.S.
citizens will not change their eating behavior dynamically. However, due to
McDonald’s super mature status, I projected its growth rate will be slightly
lower than 2%.
For Europe Segment, there is very little information available about its fast
food industry and the historic revenue growths during the last five years are
fluctuant so that it is difficult to figure out a trend for future growth from
historic data. The only information that I found is useful is that the HealthEating Index for Europe will slightly increase in the next decade. Therefore, I
decided to use the estimated GDP growth rate as a reference to project the future
growth of revenue in Europe, ending up with a growth rate of 1.84% in 2015,
which is slightly higher than the estimated growth rate because of the success of
McDonald’s health and high-quality food like McCafe in Europe. Thus I used
the linear regression to decrease the growth rate by roughly 0.02% for each year.
For APMEA segment, it is impossible to project the growth rate for each area,
so I specifically looked at China and Latin America because they are the major
driver in this segment. By looking at the projected GDP growth rate of different
countries, such as Brazil, Argentina, Colombia, Peru and others, in Latin
America, I determine the average projected GDP growth rate of Latin America
is about 3% and I believe this number can be used as the growth rate of
McDonald’s revenue in Latin America as well. On the other hand, the fast food
industry in China has an average projected growth rate of 8% in the next decade.
However, due to the high competition, uncertainty of local regulations and the
fact that the brand equity of McDonald’s is less influent in China than in the
U.S., I projected the revenue growth rate of McDonald’s should be around 5%
and eventually I determined that APMEA segment will have a 4% growth rate in
2015.
For other countries segment, I found out that the revenue growth rate during
the last five years is very stable and on the other hand, there is no useful
information can be found online to help me to project. Therefore, I use a number
that is very close to the average revenue growth rate of the last five years as the
growth rate in 2015. Finally I used linear regression to decrease the growth rate
by a linear regression.
Discounted Cash Flow Model
UOIG 11
University of Oregon Investment Group
Figure 29: Sensitivity Table of Tax and implied Price
Implied Price
Terminal Growth Rate
108
1.0%
1.5%
2.0%
2.5%
3.0%
24.4% $ 84.13 $ 93.60 $ 105.80 $ 122.09 $ 144.98
29.4% $ 84.75 $ 94.36 $ 106.76 $ 123.35 $ 146.73
Tax Rate
34.4% $ 85.38 $ 95.13 $ 107.73 $ 124.64 $ 148.52
Cost of Goods Sold
Due to the mature status of McDonald’s and large economies of scale, I believe
the cost of goods sold will be unchanging in the future. Additionally, the
uncertainty in new markets also complicates the projection so that I chose not to
change the cost of goods sold tremendously.
Selling and Administrative Expense
I projected the selling and administrative expense will increase in the future due
to the fact that McDonald’s is determined to expand new market in APMEA
segments. Again, there are lots of uncertainties, including the unpredictable
effect of the change of internal organizational structure in US segment, making
the projection difficult. However, I believe the continuous market expansion will
increase the overall selling and administrative expense slightly for each year.
39.4% $ 86.02 $ 95.92 $ 108.72 $ 125.94 $ 150.35
44.4% $ 86.67 $ 96.71 $ 109.72 $ 127.27 $ 152.22
Source: UOIG Projections
Depreciation and Amortization
I projected the depreciation and amortization expense will decrease in the future
based on the fact that McDonald’s intend to expand his business by building up
more less-capital-intense franchised restaurant.
Interest Expense
The interest expense is difficult to project as well. But given the fact that
McDonald’s determination on market expansion and product innovation, it will
require certain amount of loan to support these. That is why I projected the
interest expense will increase slightly in the future.
Capital Expenses
Given the fact that McDonald’s would like to expand its business by operating
more less-capital-intense franchised restaurants. I projected the capital expenses
will decline as the depreciation and amortization.
Tax Rate
I projected the future tax rate will increase because the expanding business in
China. The standard corporate income tax rate is 25%. Therefore, it is
reasonable to predict the tax rate will be declining in the future as more
restaurants operated in China.
Discounted Cash Flow Assumptions
Beta
I decided to weight 50% on the beta of 3-year daily based on three reasons: 1)
the 3-year daily beta is the CFA standard. 2) It has the second lowest the
standard deviation. 3) The sample size is decent. Besides signing 30% of the
total weight to 5-year daily beta because of its decent sample size and smallest
standard deviation, I also weighted 10% for each Vasicck Beta and Hamada
Beta.
Figure 29: Projected Beta of McDonald’s
Beta
SD
Weighting
1-Year Daily
0.48
0.06
0.00%
3-Year Daily
0.51
0.03
50.00%
3-Year Weekly
0.53
0.07
0.00%
5-Year Daily
0.52
0.02
30.00%
5-Year Weekly
0.56
0.05
0.00%
Vasicek Beta
0.53
-
10.00%
Hamada Beta
0.57
-
10.00%
McDonald's Beta
0.52
es
Source: UOIG Projections
Risk Free Rate
The rate of a 10-years Treasury Bill is used as the risk free rate when calculating
WACC.
The rate of a 30-years Treasury Bill is used as the risk free rate when calculating
the terminal WACC.
Terminal Growth Rate:
I chose not to use the standard 3% terminal growth rate because of several
reasons listed below:
UOIG 12
University of Oregon Investment Group
Figure 30: Projected Price Target
es
Final Price Target
Method
Implied Price
Discounted Cash Flow
Comparable Companies
$
$
Weight
107.73
109.78
70.00%
30.00%
Price Target
$
108.35
Current Price
Undervalued By
$
97.08
11.61%
Source: UOIG Projections
1) The fast food industry growth in the U.S. is only 2%. Due to the mature
status of McDonald’s, I believe its US segment growth rate will be very close to
the fast food industry rate.
2) The GDP growth rate in Europe is less than 2% as well as the projected
growth rate of McDonald’s revenue growth rate in Europe Segment.
3) The uncertainty in APMEA segment makes it difficult to grow rapidly.
Therefore, I would say it is more reasonable to assign a 2% terminal growth rate
other than 3%.
Recommendation
Based on my prediction, I calculated an implied price of $108.35, which
represents an undervaluation of 11.61%. In addition, the mature status of
McDonald’s will be able to continue stable revenue growth, receive stable cash
flow and provide long-term value for its investors. Therefore, I recommend a
hold for both Tall Firs and Svigal’s portfolio.
UOIG 13
November 21, 2014
University of Oregon Investment Group
Appendix 1 – Relative Valuation
Comparables Analysis
($ in millions)
Stock Characteristics
Current Price
Beta
Max
$97.08
1.03
Min
$8.30
0.28
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
32,760.00
23,489.00
11,084.00
0.00
0.00
4,404.38
185,382.84
227,169.84
339.14
1,409.07
0.00
0.00
0.00
367.30
3,032.22
4,780.43
11,336.00
13,852.00
803.00
0.00
0.00
634.34
42,783.42
67,168.42
Growth Expectations
% Revenue Growth 2015E
% Revenue Growth 2016E
% EBITDA Growth 2015E
% EBITDA Growth 2016E
% EPS Growth 2015E
% EPS Growth 2016E
10.90%
10.90%
14.30%
15.30%
19.20%
16.80%
-5.60%
1.20%
1.50%
1.35%
1.80%
7.10%
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
61.49%
29.88%
35.82%
19.75%
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Capital Expenditures
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Median
Weight Avg.
$42.32
$60.00
0.75
0.65
MCD
PEP
KO
YUM
TGT
WEN
McDonald's
Pepsico
Coca-Cola
Yum!Brands
Target
Wendy's
$97.08
0.52
25.00%
$96.80
0.28
30.00%
$42.32
0.51
15.00%
$38.74
0.86
25.00%
$67.50
1.03
5.00%
$8.30
0.75
18,706.76
15,936.25
5,449.20
0.00
0.00
1,938.86
105,235.76
134,429.57
4,179.60
14,516.90
2,825.80
0.00
0.00
982.79
94,490.92
110,361.62
22,844.00
23,489.00
7,282.00
0.00
0.00
1,499.91
144,924.69
183,975.69
32,760.00
20,111.00
11,084.00
0.00
0.00
4,404.38
185,382.84
227,169.84
2,112.00
3,315.00
685.00
0.00
0.00
437.49
16,948.44
21,690.44
11,336.00
13,852.00
803.00
0.00
0.00
634.34
42,783.42
67,168.42
339.14
1,409.07
0.00
0.00
0.00
367.30
3,032.22
4,780.43
2.30%
3.70%
5.80%
5.60%
13.90%
16.20%
2.86%
4.63%
6.61%
7.04%
10.19%
11.47%
2.40%
2.35%
2.74%
1.35%
12.10%
8.80%
2.30%
4.00%
4.50%
5.30%
6.70%
7.50%
1.00%
3.70%
1.50%
4.30%
1.80%
7.10%
10.90%
10.90%
14.30%
15.30%
16.50%
16.20%
2.50%
3.30%
10.40%
7.40%
19.20%
16.80%
-5.60%
1.20%
5.80%
5.60%
13.90%
16.70%
15.80%
5.79%
8.97%
3.13%
34.15%
15.79%
21.10%
10.74%
43.32%
15.66%
19.99%
11.43%
44.57%
29.88%
35.82%
18.01%
53.97%
15.79%
19.77%
10.74%
61.49%
23.59%
28.34%
19.75%
15.80%
16.43%
21.65%
11.28%
29.20%
5.79%
8.97%
3.13%
34.15%
14.43%
21.10%
6.86%
$947.00
0.37
4.24
26.74
$52.78
0.17
1.68
7.19
$493.00
0.25
3.70
13.28
$647.24
0.28
3.45
15.97
$556.30
0.17
1.82
18.47
$894.00
0.25
3.44
15.08
$493.00
0.23
4.01
26.74
$243.00
0.25
1.68
13.28
$947.00
0.37
3.70
7.19
$52.78
0.37
4.24
7.81
$75,957.00
$36,817.00
$10,974.33
$13,484.00
$9,188.00
$3,247.83
$1,953.00
$667.00
$281.89
$412.00
$134.00
$244.00
$46,523.00
$22,178.00
$4,398.94
$6,813.00
$2,379.00
$2,473.00
$52,333.25
$23,717.60
$7,465.85
$9,533.95
$5,441.50
$2,324.40
$28,691.10
$12,787.62
$8,572.90
$10,277.15
$5,167.70
$3,247.83
$68,213.00
$36,817.00
$10,769.10
$13,484.00
$7,326.00
$2,973.00
$46,523.00
$28,607.00
$10,974.33
$13,183.00
$9,188.00
$2,578.00
$14,908.00
$2,356.00
$2,449.62
$3,228.00
$1,681.00
$1,182.00
$75,957.00
$22,178.00
$4,398.94
$6,813.00
$2,379.00
$2,473.00
$1,953.00
$667.00
$281.89
$412.00
$134.00
$244.00
4.88x
9.21
20.70
17.23
28.45
22.63
0.88x
3.03
8.85
6.72
10.60
10.08
2.45x
7.17
16.96
11.60
17.50
19.78
2.70x
6.13
16.47
12.63
17.68
18.14
3.85x
8.63
12.87
10.74
15.70
18.28
2.70x
5.00
17.08
13.64
17.50
19.78
4.88x
7.94
20.70
17.23
21.42
20.18
1.45x
9.21
8.85
6.72
10.60
10.08
0.88x
3.03
15.27
9.86
15.48
17.98
2.45x
7.17
16.96
11.60
28.45
22.63
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
Implied Price
Weight
62.69879946
0.00%
63.58662355
0.00%
127.5571842
0.00%
115.9599147
70.00%
110.3357122
0.00%
95.37420462
30.00%
$109.78
97.08
13.09%
UOIG 14
November 21, 2014
University of Oregon Investment Group
Appendix 2 – Discounted Cash Flow Valuation
Discounted Cash Flow Analysis
($ in millions)
Total Revenue
% YoY Growth
Cost of Goods Sold
% Revenue
Q1
2009A
22745.00
2010A
24075.00
2011A
27006.00
2012A
27567.00
2013A
28105.70
Q2
Q3
Q4
03/31/2014A 06/30/2014A 09/30/2014A 12/31/2014E
6700.30
7181.70
6987.10
7148.90
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
$28,018.00
$28,691.1
$29,366.1
$30,040.5
$30,715.5
$31,388.8
$32,062.4
$32,736.9
$33,411.6
$34,086.7
(3.00%)
5.85%
12.17%
2.08%
1.95%
1.44%
1.38%
(4.59%)
.79%
(.31%)
2.40%
2.35%
2.30%
2.25%
2.19%
2.15%
2.10%
2.06%
2.02%
12736.70
13161.80
14904.40
15262.20
15617.90
3773.80
3984.20
3892.50
3988.90
$15,639.40
15,903.47
16,351.02
16,708.53
17,133.11
17,395.66
17,980.57
18,155.87
18,540.12
18,894.28
56.00%
54.67%
55.19%
55.36%
55.57%
56.32%
55.48%
55.71%
55.80%
55.82%
55.43%
55.68%
55.62%
55.78%
55.42%
56.08%
55.46%
55.49%
55.43%
$10,008.30
$10,913.20
$12,101.60
$12,304.80
$12,487.80
$2,926.50
$3,197.50
$3,094.60
$3,160.00
$12,378.60
$12,787.62
$13,015.03
$13,331.98
$13,582.40
$13,993.11
$14,081.79
$14,581.01
$14,871.52
$15,192.46
44.00%
45.33%
44.81%
44.64%
44.43%
43.68%
44.52%
44.29%
44.20%
44.18%
44.57%
44.32%
44.38%
44.22%
44.58%
43.92%
44.54%
44.51%
44.57%
2234.20
2333.00
2393.70
2455.20
2385.60
620.40
629.20
575.80
642.45
2,467.85
2,510.47
2,598.90
2,688.63
2,779.75
2,872.07
2,965.77
3,060.90
3,157.40
3,255.28
9.82%
9.69%
8.86%
8.91%
8.49%
9.26%
8.76%
8.24%
8.99%
8.81%
8.75%
8.85%
8.95%
9.05%
9.15%
9.25%
9.35%
9.45%
9.55%
1216.20
1276.20
1415.00
1488.50
1585.10
410.40
413.20
413.40
424.64
1,661.64
1,704.25
1,741.41
1,778.40
1,806.07
1,833.10
1,859.62
1,885.64
1,911.15
1,936.13
% Revenue
5.35%
5.30%
5.24%
5.40%
5.64%
6.13%
5.75%
5.92%
5.94%
5.93%
5.94%
5.93%
5.92%
5.88%
5.84%
5.80%
5.76%
5.72%
5.68%
Impairment and other charges (credits), net
-61.10
29.10
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
% Revenue
(.27%)
.12%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Gross Profit
Gross Margin
Selling General and Administrative Expense
% Revenue
Depreciation and Amortization
Other operating (income) expense, net
-222.30
-198.00
-236.80
-243.50
-247.20
-40.30
-33.90
32.90
-50.60
($91.90)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
% Revenue
(.98%)
(.82%)
(.88%)
(.88%)
(.88%)
(.60%)
(.47%)
.47%
(.71%)
(.33%)
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Earnings Before Interest & Taxes
$6,841.30
$7,472.90
$8,529.70
$8,604.60
$8,764.30
$1,936.00
$2,189.00
$2,072.50
$2,143.50
$8,341.00
$8,572.90
$8,674.73
$8,864.96
$8,996.57
$9,287.94
$9,256.40
$9,634.46
$9,802.98
$10,001.05
% Revenue
30.08%
31.04%
31.58%
31.21%
31.18%
28.89%
30.48%
29.66%
29.98%
29.77%
29.88%
29.54%
29.51%
29.29%
29.59%
28.87%
29.43%
29.34%
29.34%
Interest Expense
473.00
450.90
492.80
516.60
521.90
135.50
137.90
149.30
148.70
571.40
599.64
628.43
657.89
684.96
715.66
747.05
779.14
808.56
841.94
% Revenue
2.08%
1.87%
1.82%
1.87%
1.86%
2.02%
1.92%
2.14%
2.08%
2.04%
2.09%
2.14%
2.19%
2.23%
2.28%
2.33%
2.38%
2.42%
2.47%
Nonoperating (income) expense, net
-24.30
21.90
24.70
9.00
37.90
17.20
-20.40
2.10
20.60
19.50
22.95
23.49
24.03
24.57
25.11
25.65
26.19
26.73
27.27
% Revenue
(.11%)
.09%
.09%
.03%
.13%
.26%
(.28%)
.03%
.29%
.07%
.08%
.08%
.08%
.08%
.08%
.08%
.08%
.08%
.08%
Earnings Before Taxes
6,487.60
7,000.10
8,012.20
8,079.00
8,204.50
1,783.30
2,071.50
1,921.10
1,974.21
7,750.11
7,950.30
8,022.81
8,183.04
8,287.04
8,547.16
8,483.70
8,829.14
8,967.69
9,131.84
% Revenue
28.52%
29.08%
29.67%
29.31%
29.19%
26.62%
28.84%
27.49%
27.62%
27.66%
27.71%
27.32%
27.24%
26.98%
27.23%
26.46%
26.97%
26.84%
26.79%
Less Taxes (Benefits)
1936.00
2054.00
2509.10
2614.20
2618.60
578.50
684.40
852.70
602.50
2,718.10
2,782.61
2,801.56
2,850.97
2,880.58
2,964.16
2,935.36
3,047.82
3,090.26
3,139.53
Tax Rate
29.84%
29.34%
31.32%
32.36%
31.92%
32.44%
33.04%
44.39%
30.52%
35.07%
35.00%
34.92%
34.84%
34.76%
34.68%
34.60%
34.52%
34.46%
34.38%
Net Income
$4,551.60
$4,946.10
$5,503.10
$5,464.80
$5,585.90
$1,204.80
$1,387.10
$1,068.40
$1,371.71
$5,032.01
$5,167.70
$5,221.24
$5,332.07
$5,406.47
$5,583.01
$5,548.34
$5,781.32
$5,877.42
$5,992.31
Net Margin
20.01%
20.54%
20.38%
19.82%
19.87%
17.98%
19.31%
15.29%
19.19%
17.96%
18.01%
17.78%
17.75%
17.60%
17.79%
17.30%
17.66%
17.59%
17.58%
Add Back: Depreciation and Amortization
1,216.20
1,276.20
1,415.00
1,488.50
1,585.10
410.40
413.20
413.40
424.64
1,661.64
1,704.25
1,741.41
1,778.40
1,806.07
1,833.10
1,859.62
1,885.64
1,911.15
1,936.13
Add Back: Interest Expense*(1-Tax Rate)
331.85
318.59
338.47
349.44
355.33
91.54
92.34
83.03
103.32
371.00
389.77
408.98
428.68
446.87
467.47
488.57
510.18
529.93
552.48
Operating Cash Flow
$6,099.65
$6,540.89
$7,256.57
$7,302.74
$7,526.33
$1,706.74
$1,892.64
$1,564.83
$1,899.67
$7,064.65
$7,261.72
$7,371.63
$7,539.14
$7,659.40
$7,883.58
$7,896.53
$8,177.14
$8,318.50
$8,480.92
% Revenue
26.82%
27.17%
26.87%
26.49%
26.78%
25.47%
26.35%
22.40%
26.57%
25.21%
25.31%
25.10%
25.10%
24.94%
25.12%
24.63%
24.98%
24.90%
24.88%
Current Assets
1,620.30
1,981.50
2,067.30
2,586.00
2,251.40
2,092.50
2,243.10
2,384.60
2,484.46
2,484.46
2,403.19
2,561.78
2,625.89
2,694.67
2,752.66
2,830.84
2,898.26
2,969.69
3,027.79
7.12%
8.23%
7.65%
9.38%
8.01%
31.23%
31.23%
34.13%
34.75%
8.87%
8.38%
8.72%
8.74%
8.77%
8.77%
8.83%
8.85%
8.89%
8.88%
2,988.70
2,924.70
3,509.20
3,403.10
3,170.00
3,101.20
3,391.70
4,179.60
3,356.73
3,356.73
3,131.78
3,144.34
3,144.30
3,155.03
3,142.32
3,149.05
3,133.86
3,123.58
3,110.01
% Revenue
Current Liabilities
% Revenue
13.14%
12.15%
12.99%
12.34%
11.28%
46.28%
47.23%
59.82%
46.95%
11.98%
10.92%
10.71%
10.47%
10.27%
10.01%
9.82%
9.57%
9.35%
9.12%
($1,368.40)
($943.20)
($1,441.90)
($817.10)
($918.60)
($1,008.70)
($1,148.60)
($1,795.00)
($872.27)
($872.27)
($728.59)
($582.56)
($518.41)
($460.35)
($389.67)
($318.21)
($235.60)
($153.89)
($82.22)
% Revenue
(6.02%)
(3.92%)
(5.34%)
(2.96%)
(3.27%)
(15.05%)
(15.99%)
(25.69%)
(12.20%)
(3.11%)
(2.54%)
(1.98%)
(1.73%)
(1.50%)
(1.24%)
(.99%)
(.72%)
(.46%)
(.24%)
Change in Working Capital
($284.70)
$425.20
($498.70)
$624.80
($101.50)
($90.10)
($139.90)
($646.40)
$922.73
$46.33
$143.68
$146.03
$64.15
$58.05
$70.69
$71.46
$82.61
$81.71
$71.67
1952.00
2136.00
2730.00
3049.00
2674.00
568.80
589.60
658.90
895.60
2,712.90
3,247.83
3,303.68
3,343.51
3,403.28
3,427.65
3,456.32
3,486.48
3,514.91
3,538.20
Net Working Capital
Capital Expenditures
% Revenue
Unlevered Free Cash Flow
8.58%
8.87%
10.11%
11.06%
9.51%
8.49%
8.21%
9.43%
12.53%
9.68%
11.32%
11.25%
11.13%
11.08%
10.92%
10.78%
10.65%
10.52%
10.38%
$4,432.35
$3,979.69
$5,025.27
$3,628.94
$4,953.83
$1,228.04
$1,442.94
$1,552.33
$81.34
$4,305.42
$3,870.21
$3,921.92
$4,131.48
$4,198.07
$4,385.24
$4,368.75
$4,608.05
$4,721.89
$4,871.05
$3,649.65
$3,528.82
$3,546.92
$3,438.81
$3,427.41
$3,257.94
$3,278.82
$3,205.75
$3,155.37
$8,057.50
$8,749.10
$9,944.70
$10,093.10
$10,349.40
$2,346.40
$2,602.20
$2,485.90
$2,568.15
$10,002.65
$10,277.15
$10,416.14
$10,643.35
$10,802.64
$11,121.04
$11,116.02
$11,520.11
$11,714.12
$11,937.18
35.43%
36.34%
36.82%
36.61%
36.82%
35.02%
36.23%
35.58%
35.92%
35.70%
35.82%
35.47%
35.43%
35.17%
35.43%
34.67%
35.19%
35.06%
35.02%
8.58%
13.67%
1.49%
2.54%
(3.35%)
2.74%
1.35%
2.18%
1.50%
2.95%
(.05%)
3.64%
1.68%
1.90%
Discounted Free Cash Flow
EBITDA
EBITDA Margin
EBITDA Growth
$80.39
UOIG 15
November 21, 2014
University of Oregon Investment Group
Appendix 3 – Revenue Model
Revenue Model
($ in millions)
Q1
2021E
2022E
2023E
8529.00
8814.00
8851.00
2054.10
2249.00
2202.10
2378.00
8883.20
9044.87
9205.87
9366.06
9527.15
9687.21
9847.05
10008.54
10170.68
10333.41
% Growth
(2.00%)
2.11%
5.14%
3.34%
.42%
(6.25%)
9.49%
(2.09%)
7.99%
.36%
1.82%
1.78%
1.74%
1.72%
1.68%
1.65%
1.64%
1.62%
1.60%
% of Total Revenue
34.93%
33.69%
31.58%
31.97%
31.49%
30.66%
31.32%
31.52%
33.26%
31.71%
31.53%
31.35%
31.18%
31.02%
30.86%
30.71%
30.57%
30.44%
30.32%
Europe
9274.00
9569.00
10886.00
10827.00
11300.00
2712.20
2913.30
2884.10
2819.20
11328.80
11537.25
11747.23
11957.50
12167.96
12379.68
12593.85
12810.46
13029.52
13252.32
% Growth
(7.00%)
3.18%
13.76%
(.54%)
4.37%
(7.15%)
7.41%
(1.00%)
(2.25%)
.25%
1.84%
1.82%
1.79%
1.76%
1.74%
1.73%
1.72%
1.71%
1.71%
% of Total Revenue
40.77%
39.75%
40.31%
39.28%
40.20%
40.48%
40.57%
41.28%
39.44%
40.43%
40.21%
40.00%
39.80%
39.62%
39.44%
39.28%
39.13%
39.00%
38.88%
APMEA
4337.00
5066.00
6019.00
6391.00
6477.00
1618.80
1664.30
1530.50
1556.20
6369.80
6615.04
6860.46
7104.69
7347.67
7587.94
7825.44
8058.64
8287.50
8511.26
% Growth
3.00%
16.81%
18.81%
6.18%
1.35%
.50%
2.81%
(8.04%)
1.68%
(1.66%)
3.85%
3.71%
3.56%
3.42%
3.27%
3.13%
2.98%
2.84%
2.70%
19.07%
21.04%
22.29%
23.18%
23.04%
24.16%
23.17%
21.90%
21.77%
22.73%
23.06%
23.36%
23.65%
23.92%
24.17%
24.41%
24.62%
24.80%
24.97%
% of Total Revenue
Total Revenue
% Growth
2012A
2013A
Q4
8112.00
% Growth
2011A
Q3
7944.00
Other Countries $ Corporate
2010A
Q2
US
% of Total Revenue
2009A
03/31/2014A 06/30/2014A 09/30/2014A 12/31/2014E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
1190.00
1328.00
1572.00
1535.00
1478.00
315.20
355.10
370.40
395.50
1436.20
1493.94
1552.50
1612.27
1672.73
1733.95
1796.03
1859.25
1923.95
1989.75
(8.00%)
11.60%
18.37%
(2.35%)
(3.71%)
(14.93%)
12.66%
4.31%
6.78%
(2.83%)
4.02%
3.92%
3.85%
3.75%
3.66%
3.58%
3.52%
3.48%
3.42%
5.23%
5.52%
5.82%
5.57%
5.26%
4.70%
4.94%
5.30%
5.53%
5.13%
5.45%
5.38%
5.32%
5.25%
5.20%
5.13%
5.07%
5.00%
4.95%
$22,745.00 $24,075.00 $27,006.00 $27,567.00 $28,106.00
$6,700.30
$7,181.70
$6,987.10
(5.54%)
7.18%
(2.71%)
(3.00%)
5.85%
12.17%
2.08%
1.96%
$7,148.90 $28,018.00 $28,691.10 $29,366.05 $30,040.51 $30,715.50 $31,388.77 $32,062.36 $32,736.88 $33,411.65 $34,086.74
2.32%
(.31%)
2.40%
2.35%
2.30%
2.25%
2.19%
2.15%
2.10%
2.06%
2.02%
UOIG 16
November 21, 2014
University of Oregon Investment Group
Appendix 4 – Working Capital Model
Working Capital Model
($ in millions)
Total Revenue
Current Assets
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
Days Inventory Outstanding
% of Revenue
Prepaid Expenses & Short-term Investment
Days Prepaid Expense Outstanding
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Acquisitions
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Dividends Payable
% of Revenue
Accrued Charges
% of Revenue
Income Taxes Payable
% of Revenue
Other taxes
% of Revenue
Current Portion of Long Term Debt
% of Revenue
Total Current Liabilities
% of Revenue
2009A
$22,745.00
2010A
$24,075.00
2011A
$27,006.00
2012A
$27,567.00
1060.40
17.02
4.66%
106.20
3.04
.47%
453.70
7.28
1.99%
$1,620.30
7.12%
1179.10
17.88
4.90%
109.90
3.05
.46%
692.50
10.50
2.88%
$1,981.50
8.23%
1334.70
18.04
4.94%
116.80
2.86
.43%
615.80
8.32
2.28%
$2,067.30
7.65%
1375.30
18.26
4.99%
121.70
2.92
.44%
1089.00
14.42
3.95%
$2,586.00
9.38%
20254.50
1952.00
0.00
-1216.20
21531.50
$23,151.80
101.79%
21531.50
2136.00
0.00
-1276.20
22060.60
$24,042.10
99.86%
22060.60
2730.00
0.00
-1415.00
22834.50
$24,901.80
92.21%
22834.50
3049.00
0.00
-1488.50
24677.20
$27,263.20
98.90%
636.00
10.21
2.80%
0.00
0.00%
1854.80
8.15%
202.40
.89%
277.40
1.22%
18.10
.08%
$2,988.70
13.14%
943.90
14.31
3.92%
0.00
0.00%
1585.60
6.59%
111.30
.46%
275.60
1.14%
8.30
.03%
$2,924.70
12.15%
961.30
12.99
3.56%
0.00
0.00%
1581.00
5.85%
262.20
.97%
338.10
1.25%
366.60
1.36%
$3,509.20
12.99%
1141.90
15.12
4.14%
0.00
0.00%
1591.80
5.77%
298.70
1.08%
370.70
1.34%
0.00
0.00%
$3,403.10
12.34%
Q1
Q2
Q3
Q4
2013A
03/31/2014A 06/30/2014A 09/30/2014A 12/31/2014E 2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
$28,106.00 $6,700.30 $7,181.70 $6,987.10 $7,148.90 $28,018.00 $28,717.82 $29,366.05 $30,040.51 $30,715.50 $31,388.77 $32,062.36 $32,736.88 $33,411.65 $34,086.74
1319.80
17.14
4.70%
123.70
2.89
.44%
807.90
10.49
2.87%
$2,251.40
8.01%
1229.70
16.52
18.35%
106.20
2.53
1.59%
756.60
10.16
11.29%
$2,092.50
31.23%
1294.50
16.40
18.02%
110.70
2.53
1.54%
837.90
10.62
11.67%
$2,243.10
31.23%
1226.70
16.15
17.56%
105.00
2.48
1.50%
1052.90
13.86
15.07%
$2,384.60
34.13%
1283.69
16.52
17.96%
110.56
2.55
1.55%
1090.21
14.03
15.25%
$2,484.46
34.75%
1283.69
1354.83
1389.46
1425.48
1463.40
1496.54
1538.99
1578.55
1617.49
1653.11
16.72
17.27
17.27
17.32
17.39
17.45
17.52
17.60
17.67
17.75
4.58%
4.72%
4.73%
4.75%
4.76%
4.77%
4.80%
4.82%
4.84%
4.85%
110.56
118.41
123.19
134.58
147.39
159.22
175.37
186.04
200.64
214.24
2.58
2.73
2.75
2.94
3.14
3.35
3.56
3.74
3.95
4.15
.39%
.41%
.42%
.45%
.48%
.51%
.55%
.57%
.60%
.63%
1090.21
929.94
1049.13
1065.82
1083.88
1096.89
1116.47
1133.68
1151.56
1160.44
14.20
11.85
13.04
12.95
12.88
12.79
12.71
12.64
12.58
12.46
3.89%
3.24%
3.57%
3.55%
3.53%
3.49%
3.48%
3.46%
3.45%
3.40%
$2,484.46 $2,403.19 $2,561.78 $2,625.89 $2,694.67 $2,752.66 $2,830.84 $2,898.26 $2,969.69 $3,027.79
8.87%
8.37%
8.72%
8.74%
8.77%
8.77%
8.83%
8.85%
8.89%
8.88%
24677.20
25747.30
25650.00
25826.40
26071.90
25747.30 26542.86 28266.26 29828.53 31393.64 32990.85 34585.40 36182.10 37782.94 39386.70
2674.00
568.80
589.60
658.90
895.60
2712.90
3427.65
3303.68
3343.51
3403.28
3427.65
3456.32
3486.48
3514.91
3538.20
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
-1585.10
-410.40
-413.20
-413.40
-424.64
-1661.64
-1704.25
-1741.41
-1778.40
-1806.07
-1833.10
-1859.62
-1885.64
-1911.15
-1936.13
25747.30
25650.00
25826.40
26071.90
26542.86
26542.86 28266.26 29828.53 31393.64 32990.85 34585.40 36182.10 37782.94 39386.70 40988.77
$27,998.70 $27,742.50 $28,069.50 $28,456.50 $29,027.32 $29,027.32 $30,669.45 $32,390.31 $34,019.53 $35,685.52 $37,338.05 $39,012.94 $40,681.20 $42,356.38 $44,016.57
99.62%
414.05%
390.85% 407.27% 406.04% 103.60% 106.80% 110.30% 113.25% 116.18% 118.95% 121.68% 124.27% 126.77% 129.13%
1086.00
14.10
3.86%
0.00
0.00%
1485.40
5.28%
215.50
.77%
383.10
1.36%
0.00
0.00%
$3,170.00
11.28%
828.10
11.12
12.36%
0.00
0.00%
1350.50
20.16%
427.80
6.38%
393.40
5.87%
101.40
1.51%
$3,101.20
46.28%
965.10
12.23
13.44%
0.00
0.00%
1381.10
19.23%
111.00
1.55%
395.30
5.50%
539.20
7.51%
$3,391.70
47.23%
847.30
11.16
12.13%
815.50
11.67%
1408.50
20.16%
115.30
1.65%
379.70
5.43%
613.30
8.78%
$4,179.60
59.82%
885.84
11.40
12.39%
0.00
0.00%
1445.32
20.22%
226.14
3.16%
386.83
5.41%
412.60
5.77%
$3,356.73
46.95%
885.84
1018.13
1035.46
1050.18
1067.05
1078.02
1097.15
1112.16
1127.76
1140.88
11.54
12.98
12.87
12.76
12.68
12.57
12.49
12.40
12.32
12.25
3.16%
3.55%
3.53%
3.50%
3.47%
3.43%
3.42%
3.40%
3.38%
3.35%
0.00
0.00
0
0
0
0
0
0
0
0
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
1445.32
1459.05
1490.03
1500.38
1510.53
1512.84
1526.70
1530.11
1539.68
1542.29
5.16%
5.08%
5.07%
4.99%
4.92%
4.82%
4.76%
4.67%
4.61%
4.52%
226.14
238.90
242.97
245.26
245.72
246.99
249.47
249.34
248.99
249.60
.81%
.83%
.83%
.82%
.80%
.79%
.78%
.76%
.75%
.73%
386.83
368.50
$328.90
$300.41
$282.58
$254.25
$224.44
$189.87
$153.69
$122.71
.00%
1.28%
1.12%
1.00%
.92%
.81%
.70%
.58%
.46%
.36%
412.60
47.20
$46.99
$48.06
$49.14
$50.22
$51.30
$52.38
$53.46
54.54
1.47%
.16%
.16%
.16%
.16%
.16%
.16%
.16%
.16%
.16%
$3,356.73 $3,131.78 $3,144.34 $3,144.30 $3,155.03 $3,142.32 $3,149.05 $3,133.86 $3,123.58 $3,110.01
11.98%
10.91%
10.71%
10.47%
10.27%
10.01%
9.82%
9.57%
9.35%
9.12%
UOIG 17
November 21, 2014
University of Oregon Investment Group
Appendix 5 – Discounted Cash Flows Valuation Assumptions
Discounted Free Cash Flow Assumptions
Tax Rate
Risk Free Rate
Beta
Market Risk Premium
Considerations
34.38% Terminal Growth Rate
2.00%
2.35% Terminal Value
145,117
0.52 PV of Terminal Value
5.75% Sum of PV Free Cash Flows
Avg. Industry Debt / Equity
41.81%
94,004
Avg. Industry Tax Rate
27.29%
30,570
Current Reinvestment Rate
16.98%
Reinvestment Rate in Year 2019E
25.78%
% Equity
83.48% Firm Value
124,574
% Debt
16.52% Total Debt
18,697
Cost of Debt
3.14% Cash & Cash Equivalents
2,826
CAPM
5.35% Market Capitalization
WACC
4.81% Fully Diluted Shares
Terminal Risk Free Rate
3.09% Implied Price
$ 107.73
Terminal CAPM
6.09% Current Price
$
Terminal WACC
5.42% Undervalued
105,877
983
Implied Return on Capital in Perpetuity
7.76%
Terminal Value as a % of Total
75.5%
Implied 2014E EBITDA Multiple
12.5x
Implied Multiple in Year 2023E
7.9x
Free Cash Flow Growth Rate in Year 2023E
3%
97.08
10.97%
UOIG 18
November 21, 2014
University of Oregon Investment Group
Appendix 6 – Sensitivity Analysis
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
108
Adjusted Beta
Terminal Growth Rate
1.0%
1.5%
2.0%
2.5%
3.0%
0
1.0%
1.5%
2.0%
2.5%
3.0%
0.33 $ 114.51
$ 131.98
$ 156.47
$ 193.28
$ 254.79
0.33
17.96%
35.95%
61.18%
99.09%
162.46%
0.43 $
97.83
$ 110.57
$ 127.60
$ 151.53
$ 187.60
0.43
0.77%
13.90%
31.44%
56.08%
93.25%
0.53 $
84.76
$
94.37
$ 106.77
$ 123.38
$ 146.76
0.53
(12.69%)
(2.79%)
9.98%
27.09%
51.17%
0.63 $
74.25
$
81.70
$
91.04
$ 103.11
$ 119.31
0.63
(23.52%)
(15.84%)
(6.22%)
6.22%
22.89%
0.73 $
65.61
$
71.51
$
78.75
$
$
0.73
(32.42%)
(26.34%)
(18.88%)
(9.52%)
2.58%
87.84
99.59
Implied Price
Adjusted Beta
Undervalued/(Overvalued)
Terminal Growth Rate
108
WACC
1.0%
Terminal Growth Rate
1.5%
2.0%
2.5%
3.0%
0
1.0%
1.5%
2.0%
2.5%
3.0%
0.07
(27.20%)
(18.78%)
(7.91%)
6.69%
27.31%
0.06
(20.04%)
(10.86%)
1.01%
16.93%
39.43%
0.05
(12.20%)
(2.17%)
10.79%
28.18%
52.74%
6.8% $
89.41
$
89.41
$
89.41
$
89.41
$
89.41
5.8% $
98.06
$
98.06
$
98.06
$
98.06
$
98.06
WACC
4.8% $ 107.55
$ 107.55
$ 107.55
$ 107.55
$ 107.55
3.8% $ 117.98
$ 117.98
$ 117.98
$ 117.98
$ 117.98
0.04
(3.59%)
7.37%
21.53%
40.53%
67.37%
2.8% $ 129.44
$ 129.44
$ 129.44
$ 129.44
$ 129.44
0.03
5.87%
17.85%
33.34%
54.11%
83.47%
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
108
Terminal
WACC
1.0%
Terminal Growth Rate
1.5%
2.0%
2.5%
3.0%
0
1.0%
1.5%
2.0%
2.5%
3.0%
86.56
7.4%
-35.69%
-31.04%
-25.54%
-18.93%
-10.83%
6.4%
-26.15%
-19.60%
-11.58%
-1.52%
11.47%
5.4%
-12.32%
-2.36%
10.51%
27.75%
52.06%
7.4% $
62.43
$
66.94
$
72.28
$
78.70
$
6.4% $
71.69
$
78.05
$
85.84
$
95.61
$ 108.22
5.4% $
85.12
$
94.79
$ 107.28
$ 124.02
$ 147.62
4.4% $ 106.35
$ 122.93
$ 146.30
$ 181.72
$ 241.74
4.4%
9.55%
26.62%
50.70%
87.19%
149.01%
3.4% $ 144.98
$ 180.07
$ 239.51
$ 362.20
$ 763.78
3.4%
49.34%
85.48%
146.72%
273.10%
686.75%
Implied Price
Terminal WACC
Undervalued/(Overvalued)
Terminal Growth Rate
108
Tax Rate
1.0%
Terminal Growth Rate
1.5%
2.0%
2.5%
3.0%
0
1.0%
1.5%
2.0%
2.5%
3.0%
24.4%
-13.3%
-3.6%
9.0%
25.8%
49.3%
29.4%
-12.7%
-2.8%
10.0%
27.1%
51.1%
34.4%
-12.0%
-2.0%
11.0%
28.4%
53.0%
24.4% $
84.13
$
93.60
$ 105.80
$ 122.09
$ 144.98
29.4% $
84.75
$
94.36
$ 106.76
$ 123.35
$ 146.73
34.4% $
85.38
$
95.13
$ 107.73
$ 124.64
$ 148.52
39.4% $
86.02
$
95.92
$ 108.72
$ 125.94
$ 150.35
39.4%
-11.4%
-1.2%
12.0%
29.7%
54.9%
44.4% $
86.67
$
96.71
$ 109.72
$ 127.27
$ 152.22
44.4%
-10.7%
-0.4%
13.0%
31.1%
56.8%
Tax Rate
UOIG 19
November 21, 2014
University of Oregon Investment Group
Appendix 7 – Beta (Part 1)
3 Year Daily
Comp Beta
Vasicek Beta
Company
Beta
D/E
Tax Rate
Unlevered Beta
Cash as % of FV
Unlevered Beta - Cash Adjusted
SD
Variance
Blended Comp
0.62
0.38
25.8%
0.49
8.1%
0.53
0.040
0.0016048
McDonald's
0.51
0.20
44.4%
0.46
2.9%
0.47
0.032
0.0010183
SD
Variance
Industry (Comp)
McDonald's
0.53
0.47
0.0016
0.0010
39%
61%
Beta
Variance
Weight
Unlevered Vasicek Beta
0.50
Levered Vasicek Beta
0.53
Hamada Beta
0.57
3 Year Daily
ETF Beta
Vasicek Beta
Company
Beta
D/E
Tax Rate
Unlevered Beta
Cash as % of FV
Unlevered Beta - Cash Adjusted
ETF
0.86
0.28
15.7%
0.70
2.6%
0.72
0.02
0.0004499
McDonald's
0.51
0.20
44.4%
0.46
2.9%
0.47
0.0319
0.0010183
Beta
Variance
Weight
Unlevered Vasicek Beta
Industry (ETF)
McDonald's
0.72
0.0004
0.47
0.0010
69%
31%
0.64
Levered Vasicek Beta
0.69
Hamada Beta
0.77
UOIG 20
November 21, 2014
University of Oregon Investment Group
Appendix 8 – Beta (Part 2)
Hamada Beta (One year daily)
Company
Beta
Beta
SD
Weighting
D/E
Tax Rate Cash as % of FV Unlevered Beta
SD
Weighting
Beta
SD
Weighting
Pepsico
0.28
30.00%
1-Year Daily
0.48
0.06
0.00%
50.00%
Pepsico
0.55
0.06
30.00%
0.32
23.99%
11.69%
0.50
Coca-Cola
0.51
30.00%
3-Year Daily
0.51
0.03
Coca-Cola
0.43
0.08
30.00%
0.29
20.23%
10.44%
0.35
Yum!Brands
0.86
15.00%
3-Year Weekly
0.53
0.07
0.00%
Yum!Brands
1.09
0.10
15.00%
0.32
22.80%
5.00%
0.88
Target
1.03
25.00%
5-Year Daily
0.52
0.02
30.00%
Target
0.82
0.10
25.00%
0.59
36.42%
2.75%
0.59
Wendy's
0.75
0.00%
5-Year Weekly
0.56
0.05
0.00%
Wendy's
0.82
0.12
0.00%
0.58
33.03%
8.59%
0.59
Vasicek Beta
0.53
-
10.00%
Weight Average Unlevered Beta
0.66
0.38
25.79%
8.08%
0.53
Hamada Beta
0.57
-
10.00%
McDonald's
0.48
0.20
44.39%
2.93%
Levered McDonald's Beta
0.58
Hamada Beta (three year daily)
Company
Beta
0.08
0.06
SD
Weighting
D/E
McDonald's Beta
0.6235
McDonald's Beta
Tax Rate Cash as % of FV Unlevered Beta
Hamada Beta (three year weekly)
Company
Beta
Weighting
D/E
30.00%
0.32
23.99%
11.69%
0.45
0.43
30.00%
0.29
20.23%
10.44%
0.35
Yum!Brands
1.09
15.00%
0.32
22.80%
5.00%
0.88
0.43
Target
0.82
25.00%
0.59
36.42%
2.75%
0.59
8.59%
0.58
Wendy's
0.82
0.00%
0.58
33.03%
8.59%
0.59
25.79%
8.08%
0.51
Weight Average Unlevered Beta
0.38
25.79%
8.08%
0.52
44.39%
2.93%
0.20
44.39%
2.93%
Pepsico
0.52
0.03
30.00%
0.32
23.99%
11.69%
0.48
Pepsico
0.49
Coca-Cola
0.62
0.04
30.00%
0.29
20.23%
10.44%
0.50
Coca-Cola
Yum!Brands
0.91
0.06
15.00%
0.32
22.80%
5.00%
0.73
Target
0.59
0.04
25.00%
0.59
36.42%
2.75%
Wendy's
0.80
0.07
0.00%
0.58
33.03%
Weight Average Unlevered Beta
0.62
0.38
McDonald's
Levered McDonald's Beta
0.51
0.55
0.20
0.04
0.03
McDonald's
Levered McDonald's Beta
Hamada Beta (Five year daily)
Company
SD
0.52
0.07
0.62
0.53
0.56
0.07
Tax Rate Cash as %Unlevered
of FV
Beta
Hamada Beta( Five year Weekly)
Beta
SD
0.02
Weighting
D/E
Tax Rate Cash as % of FV Unlevered Beta
30.00%
0.32
23.99%
11.69%
0.46
Pepsico
Company
0.43
Weighting
D/E
30.00%
0.32
23.99%
11.69%
0.39
0.43
30.00%
0.29
20.23%
10.44%
0.35
Yum!Brands
1.09
15.00%
0.32
22.80%
5.00%
0.88
0.59
Target
0.82
25.00%
0.59
36.42%
2.75%
0.59
8.59%
0.59
Wendy's
0.82
0.00%
0.58
33.03%
8.59%
0.59
25.79%
8.08%
0.52
Weight Average Unlevered Beta
0.65
0.38
25.79%
8.08%
0.50
44.39%
2.93%
McDonald's
Levered McDonald's Beta
0.47
0.54
0.20
44.39%
2.93%
Pepsico
0.50
Coca-Cola
0.43
30.00%
0.29
20.23%
10.44%
0.35
Coca-Cola
Yum!Brands
1.09
15.00%
0.32
22.80%
5.00%
0.88
Target
0.82
25.00%
0.59
36.42%
2.75%
Wendy's
0.82
0.00%
0.58
33.03%
Weight Average Unlevered Beta
0.65
0.38
McDonald's
Levered McDonald's Beta
0.52
0.56
0.20
0.02
Beta
SD
0.05
0.05
Tax Rate Cash as %Unlevered
of FV
Beta
UOIG 21
University of Oregon Investment Group
November 21, 2014
Appendix 8 – Sources
Factset
Google Images
Google Finance
IBISworld
Morningstar
McDonald’s investor relation
Euromonitor International
SEC Filling
Seeking Alpha
Wall Street Journal
Yahoo Finance
UOIG 22