Mcdonalds Risk And

Risk Management
COMPANY BACKGROUND
 McDonalds
• According to McDonald (2010), McDonald is the
world’s largest chain of quick service restaurants
organization in the world, serving tens of millions of
customers daily worldwide.
• more than 30,000 restaurants in 120 countries
worldwide.
• McDonalds operates according to four values which
are quality, service, convenience and value.
•
• The good reputation of the company
and the expectation of an excellent
service no matter which branch people
eat is a marketing strategy of
McDonalds.
• operate on a cost leadership basis by
offering low p
• riced goods with higher profit margins.
 Financial Risk
• Financial risk is that a company will not have
sufficient cash flow to meet financial obligations.
• financial risk is the additional risk a shareholder
bears when a company uses debt in addition to
equity financing. Companies that issue more debt
instruments would have higher financial risk than
companies financed mostly or entirely by equity.

• financial risk is an
umbrella term for
multiple types of
risk associated with
financing
 Types of Financial Risk
McDonalds Faced
Legal Risk
•Operating in developed markets like the U.S. and Europe,
McDonalds faces tighter regulations. Some regulatory changes
include printing nutritional content on items, product packaging,
taxation, and marketing to the children. This could translate into
higher costs of compliance. For example, effective January 1, 2012,
McDonalds had committed itself to The EU Pledge, in which it would

How McDonalds
handle the risk?

fulfill nutritional criteria for items

advertised to kids under the age of
12. In the same effort McDonalds
also committed to not engage in
communication to primary schools
in Europe.
Market Risk
•the risk to an organization resulting from movements in market prices, in
particular, changes in interest rates, foreign exchange rates, and equity
and commodity prices.
Here are the seven most pressing challenges he faces.
1. Win back customers who have fallen out of love
with McDonalds
2. Take on Burger King for low-income customers
3. Tackle the bad PR by paying staff more
4. Sort out China, where it has been rocked by food
safety scandals
5. Get ready to take on investors
6.Slim down the menu
7.Read the history books
 Currency Risk
McDonalds had 40% of its debt denominated in foreign
currency. The Euro, Australian Dollar, British Pound,
and Canadian Dollar represented 65% of McDonalds
operating income over the same period. The
management estimates about $0.25 change to the
earnings per share if any of these currencies moved
even by 10%. A $0.25 change would be a 20% change
in the earnings per share (or EPS) of $1.21 as of the
quarter ending March, 2014.

How McDonalds
handle the risk?

can be mitigated through various

hedging instruments. Sometimes
these risks are mitigated due to
natural hedging—if the revenues
declined, the costs would also
decline.
 Operational Risk
▪The risk of a change in value caused by the fact that actual
llosses, incurred for inadequate or failed internal process, people and
systems, or from external events (legal risk), differ from the expected
losses.

Several labor strikes and protest against McDonalds by its workforce

relating matters such as increasing minimum hourly wages and the
right to unionize.
How McDonalds
handle the risk?
 Reputation Risk
Typically associated with reputation risks include ethics, safety, security ,
sustainability,quality and innovation.
This risk can be informational in nature that may be difficult to realize
financially.
There have been several studies and some criticismsurrounding mcdonalds:
•food quality
•treatment of employees
¤all of these contribute changes in consumers perseption of McDonalds and
the food it serves.
Failure to keep up with consumers demand

How McDonalds
handle the risk?