McDonald’s menu includes hamburgers and cheese burgers, the Big mac, Quarter pounder with cheese, and filet-o-fish, several chicken sandwiches, chicken Mcnuggets, snack wraps, French fries, salads, oatmeal, shakes, Mcflurry desserts, sundaes, soft serves, cones, pies, soft drinks (such as diet coke), coffee, Mccafe beverages and other beverages.
Also, the restaurant sells a variety of other products during limited time promotions. The company offers the Mc-Rib sandwich on seasonal basis, which adds to the company’s appeal. McDonald’s offers a full or limited breakfast menu in the US, which may include Egg Mcmuffin or sausage Mcmuffin with egg, Mcgriddles biscuit and bagel sandwiches and hotcakes.
In Asia, many McDonald’s branded restaurants serve soup. In India, beef or pork is replaced with lamb because of their religious prohibition of beef consumption. In Germany and western Europe, McDonald’s serve higher margin products like beer. In new Zealand, the company’s restaurants serve a local favorite, meat pies!.
There have been complaints about McDonald’s products on health related issues, saying that according to endalldisease.com, “Every mouthful of McDonald’s contains a handful of chemicals that raise ‘bad’ cholesterol level, increase diabetes risk, lower immunity and damage DNA. Although McDonald’s menu items may not be the healthiest, the company works very hard to adjust its menu to the tastes of its customers.
McDonald’s focuses on three E’s in its supply chain, which are ethics, environment and economics. McDonald’s has direct and indirect suppliers in their supply chain. Their indirect suppliers include manufacturing companies and farms which produce the foodstuff. McDonald’s meat and beef materials are procured from the indirect suppliers like farms and ranches.
The suppliers obtain the food materials from their cattle and farms and send them to the distribution centers for processing and the manufacturing companies for further/final processing before sending the processed materials to McDonald’s but beef is sent directly to McDonald’s.
Analysis of Financials
McDonald’s maintained a positive turnover growth momentum from 2010 to 2013 financial year end, but declined by 2% y/y in the financial year end of 2014 to 27.441 billion dollars from the previous 28.105 billion dollars obtained in 2013. In the analysis of the 2015 quarterly statements of McDonald’s, it was observed that McDonald’s has been on downward trend with a decline in revenue from the first quarter by 11 %, and net income by 33 % y/y, falling from the previous 1.204 billion dollars to 811.5 Million dollars.
Consolidated operating income decrease of 28% (20% in constant currencies) due to weaker operating performance and $195 million of strategic charges related to restaurant closing and other management actions.
The same trend was observed in the second quarter. Revenue declined by 10% y/y from the previous year falling to 6.497 billion dollars from the previous 7.181 billion dollars in the same quarter. Again, there was decline in McDonald’s net income by 13% y/y in the second quarter, falling from the previous 1.387 billion dollars to 1.202 billion dollars.
With the recent release of the quarterly statement (10Q) of McDonald’s, the same thing is observed. Revenue declined by 5% y/y from the previous year, falling from the previous 6.987 billion dollars to 6.515 billion dollars. However net income increased by 23% leaping from the previous year’s 1.309 billion dollars to 1.608 billion dollars.
Year- on- year, the return on equity has not been impressive. ROE went down from 36.82 % in 2012 to 35.69% in 2013 and 32.97% in 2014; however, following their recent release of the third quarter results of 2015, the return on equity rose sharply to 38.95%. This is partly due to the company purchasing $3.1 billion shares through share repurchases and dividends. ROA declined to 13.42% in 2014 from the previous 15.51 % in 2013.
Total shareholders’ funds of McDonald’s declined to $12.853 billion in 2014 to $16.010 billion in 2013 representing a decline of 19.72%. Total Assets increased in 2013 to $36.626 billion from $35.387 billion dollars in 2012. However there was a decline in 2014 to 34.281 billion dollars thereby representing a decline of 6% year-on-year.
Total asset turnover increased from 0.767 in 2013 x to 0.800x in 2014 but this is due to the reduction in total assets and not an increase in sales revenue. Although current asset turnover ratio reduced from 0.179x in 2013 to 0.153x in 2014. This means that the company managed the total assets more efficiently in generating revenue over the course of the years, but the current assets were not so efficiently managed in generating the revenue.
The total assets of the company were financed with a mix of Equity and Liabilities in the proportion of 37% and 63%. This shows the company is highly geared. Total debt ratio of McDonald’s went up to 63% in 2014 from 56% in 2013.
Working capital decreased by 23.51% in 2014 from the percentage of the previous year, 2013 and current and quick ratios stood at 1.52x and 1.20x respectively in 2014, representing a decline from 2013figures with current and quick ratios of 1.59 x and 1.30x respectively. Although there was a decline between the two years, the ratios are still high. This implies that the Management of the company was efficient in using the firm’s short term assets and liabilities to support its business.