Short Review about Mcdonalds

McDonald’s Corporation Analysis 1) Summary of the Company: McDonald’s Corporation is the world’s largest chain of hamburger fast food restaurants. There are over 31,000 McDonald’s locations worldwide primarily selling hamburgers, cheeseburgers, chicken products, french fries, breakfast items, soft drinks, and desserts.

2) Financial Ratios Analysis: 1. Net Profit Margin- The net profit margin of 18. 34 percent for 2008 indicates that 18. 34 cents of net income was generated for each dollar of sales. The significant increase of 7. 83 percent, from 2007’s 10.

51 percent, yielded an additional $1. 4 billion in profit on the company’s $23. 52 billion in revenue. 2. Gross Profit Percentage- McDonald’s gross profit percentage for 2008 was about 27.

39 percent, which was a good increase from 2007’s gross profit percentage of 17. 02 percent. The increase indicates McDonald’s made 10. 37 cents more gross profit on each dollar of revenue, making the company’s cash flows more liquid. 3.

Asset Turnover- The asset turnover ratio for 2008 was a relatively low 0. 81, only a 0. 3 increase from 2007. This indicates 0.

81 of revenue was generated for every dollar's worth of assets in 2008, which is not so good.It also implies the company’s pricing strategy is of high profit margins. 4. Fixed Asset Turnover- The 1. 14 fixed asset turnover ratio for 2008 is relatively low similar to 2007’s fixed asset turnover ratio of 1. 13.

This indicates McDonald’s generated about $1. 14 in sales revenue for every dollar invested in fixed assets meaning the company is not operating efficiently enough. 5. Return on Assets- The return on assets ratio for McDonald’s increased by 6. 7 percent from 2007’s 8. 21 to 2008’s 14.

91 percent, which comes from the product of the net profit margin and the asset turnover ratios.This is good because it indicates the company earned almost 15 cents for each dollar invested in 2008. 6. Return on Equity- In 2007 ROE was 15.

58 percent and it almost doubled in 2008 to 30. 10 percent. The company’s high ROE is a good indication that it is earning a higher return on borrowed funds than it is paying to creditors for interest. 7.

Earnings Per Share- In 2008 the earnings per share was $2. 60, a ratio that increased by $1. 16 from 2007’s EPS of $1. 44.

This is a good thing because it indicates the company’s profitability is good. 8. Price/Earnings Ratio- The P/E ratio for 2008 was 23. 2, a major decrease of about 17 from 2007’s P/E ratio of 40. 91.

This is a bad indication because a lower P/E suggests that investors are expecting lower earnings growth in the future. 9. Receivables Turnover- In 2008 the receivables turnover ratio was 23. 70, a 0. 57 decrease from 2007’s 24.

49 ratio. The decrease along with the low ratio means the company is not doing a good job of collecting the credits owed to them that is also not earning interest. 10. Inventory Turnover- The inventory turnover ratio for 2008 was 144.

25, which slightly decreased by 14. 84 from 2007’s 159. 09 ratio.Even with a slight ratio decrease, the high inventory turnover ratio is a good thing for McDonald’s because the food industry’s inventory is subject to spoilage. The days to sell ratio for 2008 was 2. 53, a slight increase from 2.

29 in 2007. 11. Current Ratio- McDonald’s 2008 ratio was a strong 1. 39, which was a needed increase from 2007’s current ratio of 0. 80.

This is a good indication that the company is capable paying its current liabilities compared to the previous years ratio that implied the company was unable to cover its liabilities. 12. Quick Ratio- The company’s 2008 quick ratio of 1. 8 can be higher but it indicates the ability to pay off its short-term liabilities with its most liquid assets, an increase from 2007’s 0.

67 quick ratio, which is a good improvement. 13. Debt to Assets- McDonald’s 2008 debt to assets ratio of 0. 53 means creditors contributed 53% of the company’s financing and the other 47% from shareholder’s equity, a slight ratio increase from 2007’s 0. 48 debt to assets ratio. 14.

Times Interest Earned- The 12. 04 TIE ratio for 2008 means the company is generating enough profit to cover the interest expenses, a great indication. 15. Free Cash Flow- McDonald’s FCF increased from 2007’s $1.

6 billion to almost $2 billion, which is a huge increase indicating the company has enough to cash flow from operations to purchase property, plant, and equipment and pay dividends to shareholders. 3) Recent Company News: On 2/16/10 Burger King, the second largest U. S. hamburger chain after McDonald's, said it would serve Starbuck’s “Seattle's Best” coffee in about 7,250 U. S. outlets by September making it a direct challenge to McDonald’s strong sales of its new coffee items.

On the other hand, TheStreet. com Ratings Investment Analyst Jake Lynch recently reported McDonald’s to be a op dividend-paying stock to buy because its fourth-quarter net income increased 23% to $1. 2 billion, revenue jumped 7. 3% to $6 billion, and its stock has increased 15% in the past year. 4) Company Strengths: Since McDonald’s is the most well know fast food chain in the world with a market cap of 69.

35 billion, brand recognition is their biggest strength. The secret of McDonald’s success is its willingness to innovate and maintain consistency in the operation of its many outlets. In recent years McDonald’s has introduced Premium Salads, Snack Wraps, fresh Apple Dippers in the United States, and Corn Cups in China.Also, McDonald's products are priced so low that economic conditions are almost insignificant. 5) Threats & Risk Factors: The key threats to McDonald’s are the lack of growth opportunities domestically making it difficult to achieve substantial growth.

Also, Burger King and Starbucks have merged to offer coffee menu items. This threatens McDonald’s recent strong sales of its own new coffee items. Another concern is the public’s newfound emphasis on healthier eating since their food doesn’t have a good/healthy public image.Moreover, McDonald's Corporation is currently rated as having Aggressive Accounting & Governance Risk. 6) Recommendation to Buy/Not Buy: After thoroughly analyzing McDonald's Corporation, I would strongly recommend it as a good investment because all the financial ratios are fairly stable or improving without any major risks. McDonald’s has had 68 consecutive months of positive global comparable sales through December 2008.

With a current dividend yield of 3. 5%, McDonald's stock is a good investment. The shares have gained over 15% during the past year and its three-year annualized profit growth is 8. 7%