San Beda University

Graduate School of Business

In Partial Fulfillment of the Requirements for the

Degree of Master in Business Administration

FINANCIAL MANAGEMENT
McDonald’s Corporation

Submitted to:
Prof. Julius Ong Buendia

Submitted by:
Christian Denis Marcus H. Cruz
Hannah Gloria D. Kadatuan
Gisella Bernadette G. Mutuc

August 17, 2019

Date Submitted
TABLE OF CONTENTS

I. COMPANY PROFILE
a. History
b. Background
c. Products & Services

II. INDUSTRY ANALYSIS

Industry Profile
Top Three Players
Size (Sales)
Employment
Competition
Five Forces Model
PESTEL

III. MARKET OUTLOOK

Market Background
Short-Term Outlook
Long-Term Outlook

IV. SWOT ANALYSIS

Strengths
Weaknesses
Opportunities
Threats
V. PROPOSED FINANCIAL STRATEGIES AND ITS IMPACT
Financial Statements
Financial Ratios
Summary Findings
Recommended Strategies

VI. REFERENCES
I. COMPANY PROFILE
HISTORY
Back in 1954, a man named Ray Kroc discovered a small burger restaurant in California,
and wrote the first page of our history. From humble beginnings as a small restaurant, we're
proud to have become one of the world's leading food service brands with more than 36,000
restaurants in more than 100 countries.
on its core brand, McDonald's began divesting itself of other chains it had acquired
during the 1990s. The company owned a majority stake in Chipotle Mexican Grill until October
2006, when McDonald's fully divested from Chipotle through a stock exchange. Until December
2003, it also owned Donatos Pizza, and it owned a small share of Aroma Café from 1999 to
2001. On August 27, 2007, McDonald's sold Boston Market to Sun Capital Partners.

COMPANY BACKGROUND
McDonald's is the world's largest restaurant chain by revenue, serving over 69 million
customers daily in over 100 countries across approximately 36,900 outlets as of 2016. Although
McDonald's is known for its hamburgers, they also sell cheeseburgers, chicken products, french
fries, breakfast items, soft drinks, milkshakes, wraps, and desserts. In response to changing
consumer tastes and a negative backlash because of the unhealthiness of their food, the company
has added to its menu salads, fish, smoothies, and fruit. The McDonald's Corporation revenues
come from the rent, royalties, and fees paid by the franchisees, as well as sales in company-
operated restaurants. According to a BBC report published in 2012, McDonald's is the world's
second-largest private employer (behind Walmart) with 1.9 million employees, 1.5 million of
whom work for franchises.
McDonald's restaurants are found in 120 countries and territories around the world and
serve 68 million customers each day. McDonald's operates 37,855 restaurants worldwide,
employing more than 210,000 people as of the end of 2018. There are currently a total of 2,770
company-owned locations and 35,085 franchised locations, which includes 21,685 locations
franchised to conventional franchisees, 7,225 locations licensed to developmental licensees, and
6,175 locations licensed to foreign affiliates.
PRODUCTS & SERVICES
According to EndAllDisease.com, “Every mouthful of McDonalds contains a handful of

chemicals that raise ‘bad’ cholesterol levels, increase diabetes risk, lower immunity, and damage

DNA.” Specific ingredients that can cause these issues include trans-fats, petro-chemicals, high

levels of sugars, and artificial sweeteners. You can find a table of McDonald’s nutrition facts

here.

Despite health-related controversy, McDonald’s restaurants offer a substantially uniform

menu, although there are geographic variations to suit local consumer preferences and tastes.

Plus, McDonald’s tests new products on an ongoing basis.

McDonald’s menu includes hamburgers and cheeseburgers, 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-serve cones, pies, soft

drinks, coffee, McCafé beverages, and other beverages. Also, the restaurants sell a variety of

other products during limited-time promotions. The company offers the McRib sandwich on a

seasonal basis, which adds to the company’s appeal.

 McDonald’s restaurants in the U.S. and many international markets offer a full or limited

breakfast menu. Breakfast offerings may include the Egg McMuffin or Sausage McMuffin with

Egg, McGriddles, biscuit and bagel sandwiches, and hotcakes.

In Asia, many McDonald’s branded restaurants also serve soups. In India, lamb often

replaces beef in burgers due to the religious prohibition of beef consumption. In Indonesia and

Singapore, menu items include McRice and Ebi (prawn or shrimp). In Germany and Western

Europe, McDonald’s serves higher-margin products like beer. In New Zealand, the company’s

restaurants serve a local favorite, meat pies!

So, although McDonald’s menu items may not be the healthiest, the company works very hard to

adjust its menu to the tastes of its consumers. In recent years, the company has included lower-

calorie salads, fruits, and wraps to its menus.

Through its supply chain, McDonald’s serves almost 1% of the global population each

day of the year. The company sells over 75 hamburgers a second.

McDonald’s claims that it has a sustainable supply chain in which it focuses on the three

E’s: ethics, environment, and economics. However, the company’s focus is probably in the

reverse order. Its supply chain is a complex web of direct and indirect suppliers that are held to

clear standards for quality and efficiency. Indirect suppliers operate facilities such as grain mills

and abattoirs. Farms and ranches raise cattle or grow wheat, lettuce, and other essential

ingredients. Distribution centers coordinate purchasing and distribution to restaurants. Finally,

processing facilities produce finished products like beverages, buns, and meat patties.

Companies that McDonald’s has worked with in the past include Cargill, Smithfield

Foods, Mullins Food Products, Bama Companies, Florette Agricola-Pentaflor, Aria Foods,

Golden Foods, JBS, BRF, Kraft, Pepsico, Coca Cola, Tyson, and Griffith Laboratories.
II. INDUSTRY ANALYSIS

TOP THREE PLAYERS

McDonald’s

McDonald’s is the largest fast food chain in the world. This food chain has 35000 outlets in total

across 119 countries. Everyday, nearly 68 million customers visit McDonald’s. That’s more than

total population of Great Britain.

Hamburger is the signature product of McDonald’s. The company sells 75 hamburgers in every

seconds. Chicken sandwiches, French fries, desserts and soft drinks are other major products

from McDonald’s.

McDonald’s business begun in the year 1940 by Richard and Maurice McDonald’s in San

Bernadino in California. Today, McDonald’s employing more than 1.7 million people. This

global food chain also partnered with number of entertainment companies and became largest

distributor of toys.

KFC

KFC or Kentucky Fried Chicken is the second largest restaurant chain in the world. It was

founded by Harland Sanders in 1930 in Kentucky. The image of Harland Sanders widely uses in

advertisements and logo of KFC. Now KFC has 18875 stores in 118 countries. KFC gets nearly

8 million customers everyday from US alone.

The recipe of pressure fried chicken pieces, signature product of KFC still unknown to outer

world. It is kept in a safe in Louisville in  Kentucky State. In order to ensure freshness, KFC

discard the chicken pieces those has not been sold within 90 minute. Main products within

KFC’s menu also include chicken burgers, popcorn chicken and various finger foods.

Subway

Subway fastfood service operates in 107 countries, has 42174 restaurants in total. Submarine

sandwiches and salads are main products of subway. There are 38 million subway sandwich
options available for the customers. It serves 7.6 million sandwiches on daily basis. In fact,

subway makes enough sandwiches in an year that could cover the Earth for 14 times.

Submarine sandwich is the signature product of subway. But products from service varies in

accordance with the location. Roasted chicken, tuna, subway club, subway melt, chicken teriyaki

are other popular products from subway.

SIZE

McDonald’s Corporation has

seen decline in over-all sales
comparing from 2017 to
2018 but has show more
profits due to less operating
expenses more likely
attributed on their efforts to a
more digital operations and
the shift to aggressive
franchising efforts. The
company also improved their
investing actives for both
company owned and
franchise activities.
EMPLOYMENT

Employment
500000
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
2012 2013 2014 2015 2016 2017 2018

The company’s number of employees worldwide including corporate offices and operated
restaurants employs to an estimate of 210,000 employees as of 2018. The company is also
moving to a more digitally inclined operation thus causing a decline in employment from 2012 to
2018 from 440,000 employees to 210,000 employees at the end of 2018.[ CITATION Gol18 \l
13321 ]

COMPETITION

Sometime in the late 1970’s, the owner of Jollibee learned that an American hamburger chain is
coming to invade the Philippines. Learning that McDonald’s will invade the Philippines, he
prepared to face the American fast food giant. Tony Tan Caktiong, owner of Jollibee; fought
McDonald’s and basically copied what McDonald’s is doing, from the colorful costumes down
to the menu where the only difference is Jollibee offered food suited for Filipino taste. Since
then, the two fast food giant has been on each other’s heels with Jollibee sporting the “Chicken
Joy” VS McDonald’s “Big Mac”. The two has been neck to neck with promotions and branches
with Jollibee leading at 978 while McDonald’s at 581 branches. [ CITATION Chr17 \l 13321 ] .
However, Jollibee is facing difficulties due labor issues with the political move of ending
contractualization, huge expenses are expected for both companies. Nevertheless, they are still
considered as the top players in the Philippine fast food industry.
FIVE FORCES
To be able to
better understand
the fast- food
industry in the country,
opportunity factors are
to be discussed
and analyzed
below – which is
usually done using
Porter’s FiveForces
Model.
Overall, the
degree of rivalry, supplier power, and threat of substitution in the Philippine fast-food industry is
high while bargaining power is moderate. On the other hand, threat of new entrants is considered
low.

Threat of New Entrants

 There is a low threat of new entrants for fast-food service in the country since the
government requires a complex set of permissions to open up branches. In addition, McDonald’s
is a well-known company that continues to dominate the Philippine market; as such, new
entrants will have a hard time competing with their known products and customer loyalty of
Filipinos to the Philippine’s number one fast-food chain of the country.
Bargaining Power of Suppliers
Chickens and burgers are among fast food chains’ top-selling products and are important
for firms to have enough suppliers of raw materials for such products as to meet the increased
demand of consumers. In August 2014, Mcdonald’s lost millions of pesos a day and was forced
to close 72 of its stores due to shortage of their items. Their reason for this dilemma is due to a
major system upgrade that affected the delivery schedule of raw materials from their commissary
to selected stores.
Rivals Between Competitors
In the fast food chain business in the Philippines, McDonald’s remains to be one of the
giants in the industry. Yet its rival competitors also happen to be successful and some new
entrants are also starting to develop. The rivalry among fast food chains in the country is deemed
to be high because of the fact that offered products and services remain similar with respective
competitors. The price of such products and services also happen to be closely the same; as such,
the choices of the consumers also expand. With these, the rivalry tends to be high and the choice
of consumers tends to be influenced by their personal preferences or the availability of a branch
on their area
Bargaining Power of Buyers
The buyers have high bargaining power for fast food chains because they can choose
from any one of them. Buyers have the ability to purchase or not purchase a product from
McDonald’s because there are many other alternatives. They can reduce a firms’ profitability by
demanding more unique products that can satisfy the changing taste and lifestyle of customers.
Threat of Substitution
The threat of substitute products for fast-food chain products and services are high since
there are a lot of options in the market that provides similar products. Also, there are other
similar products that can be a substitute to satisfy consumer’s cravings for fast-food products
such as snacks that compete to fries and burgers and tea beverages that compete to soda. In
addition to that, most people nowadays are more aware of the negative effects of fast-food on
their physical health. There are more customers which are health conscious that prefer to eat in
restaurants serving nutritional foods rather than those served at fast-food chains.

PESTEL
Political Factors
This aspect of the PESTEL/PESTLE analysis refers to the effects of governmental
actions and policies on the remote or macro-environment of McDonald’s business and the
economy as a whole. Governmental intervention can determine the rate and path of business
development.
Taxes affect fast food businesses like McDonald’s. With the Train Law being
implemented, fast-food companies have to slightly increase its prices. The Train law reduced the
Personal Income Tax of employees but also imposes new taxes in the form of excise tax
specifically on sweetened beverages. The China US Trade War affected the fast-food chain
industry. In July of 2018, U.S. President Trump released a list of proposed tariffs on $200bn
worth of Goods, which includes auto parts to food ingredients to construction materials. In the 1
st of August of the same year, he asked his trade tsar on considering increase of tariffs on these
goods to 25%. On the other hand, China responded by supporting European businesses and
politicians with improved market access on their products and investment terms. The Philippines
can be considered as import dependent country, wherein this year our exports decline by 3.8%
and our imports increased by 11.4%. Raw materials that the country imports from China and U.S
might have an increase in its price due to its dispute.
Illegal rice importation has been an issue a few months back. In June of 2018, 100,000
sacks of rice from Vietnam were illegally smuggled, with a worth of 250 million. According to
Bantay Bigas spokesperson Cathy Estavillo, the smugglers may have taken advantage of the
entry of the rice imported by state-run grains agency National Food Authority (NFA) from
Vietnam and Thailand. Philippines is expected to import more rice next year as local production
of our farmers are not enough to cover the country’s demand of its main staple. Philippines is
expected to import 1.2M metric tons for the year 2019 wherein there might be changes in the
forecast as the government is yet to finalize the quantitative restrictions on rice importation.
Economic Factors
 This aspect of the PESTEL/PESTLE analysis pertains to the effects of economic
conditions and trends on the remote or macro-environment of McDonald’s. Economic changes
directly and indirectly influence business performance.
For the past few years, Philippine GDP is on a steady pace for its growth, with an average
of 6.625% growth for the past 3 years. The Philippines is ranked 5 th in the countries with high
GDP in South East Asia. The Philippines was overtaken by Vietnam and Indonesia with the most
competitive indicators in the last two years. The inflation surge has reached 6.4% last August,
and the most obvious impact will be the rapidly rising prices due to the continuous effect
Inflation wherein the price of basic necessities increased.

Socio-economic Factors
This aspect of the PESTEL/PESTLE analysis refers to the social conditions that support
or limit McDonald’s business. Social trends influence consumer behaviors and, in turn, affect the
remote or macro-environment of the business in terms of revenues.
The Population of the Philippines has been on a steady population growth for the past
few years, putting the Philippines as the 13 th most populated country next to Ethiopia and
followed by Egypt with a current growth rate of 1.72% annually. 36.99% of the total population
are in the age bracket of 25 to 54 years old and next is the 33.39% with the age bracket of 0-
14%. Since the end of World War 2 people from rural areas has transferred here in the
Philippines. The current population density is high but the distribution of the population is
uneven, especially that most of the people live within or near Metro Manila. Filipinos love to
celebrate events and accomplishments with the family which shows that Filipinos does truly
have close family ties. Nielsen Shopper trends report indicates that Filipinos prefer to dine out
rather than to make their own food. Filipinos are also known on the concept of “Pasalubong”,
that someone from other country or someone going home must bring a gift, souvenir or food.
The tradition of giving a paalubong is of great cultural importance for Filipinos as it strengthens
the bond with the immediate family, relatives, and friends.
Technological Factors
This aspect of the PESTEL/PESTLE analysis pertains to the impact of technologies and
related trends on the remote or macro-environment of companies. In this external analysis case,
McDonald’s Corporation’s success depends on business adaptation to maximize the benefits of
technological trends and resources.
Technology has been one of the biggest factors for the fast food industry. With the
entrant of competitors from other country, applications such as Grab Food, Food Panda and
Honest Bee ordering food from restaurants and food stalls located in malls and such has been
made easier especially that millennials like to try new things and doesn’t like to wait for a long
line. Stand-alone self-service food kiosks are changing the restaurant industry, improving
operations and impacting customers’ purchasing habits. Earlier this year, McDonalds has started
adding standalone kiosk on its restaurants and they have been aiming to add 1000 units of self-
service kiosks. Self-service kiosks in restaurants can increase revenue, reduce customer wait
times, process orders quicker, and ensure ordering consistency.
Environmental Factors
This aspect of the PESTEL/PESTLE analysis refers to the trends linked to the natural
environment, and how these trends affect McDonald’s remote or macro-environment. This
company analysis examines the influence of ecological trends on businesses and consumers.
The fast-food industry has been known for convenience and ease of eating their product
whether it is dine-in or take-out. Fast-food industry is also known to use a lot of plastic products
for its packaging, from the wrappers of its burgers to the boxes of their meal and bags used for
take-out customers. CWA (Clean Water Association) found that the biggest source of litter is fast
food with an astounding 49% of litter that can be found. Up to 31%, according to CWA findings,
of trash could be eliminated by using reusable alternatives. Fast food giant such as McDonalds
has taken initiative to lessen their use of plastic products by not giving straws for dine in
customers and have their take-out food in a paper bag.
Fast food restaurants have become a fact of life throughout the world. In fact, fast food
restaurants in the world generate more than $570 billion annually and the U.S. accounts for
nearly half that amount with $200 billion in fast food revenues in 2015. But the problem is that
fast food emissions are becoming a real problem, as the harmful pollutants created by these
facilities have many scientists concerned about their adverse environmental and health effects.
Legal
 This aspect of the PESTEL/PESTLE analysis pertains to the impact of laws or
regulations on firms. Changes in legal systems and new laws shape the remote or macro-
environment of businesses by imposing new requirements.
The Government has been promoting healthy diet among Filipinos through the National
Nutrition Council. Nutrition Month is an annual campaign held every July to raise health
awareness and the importance of nutrition for Filipinos, wherein events are usually held in
Schools and government offices to celebrate the said event. The main goal of the campaign is to
raise awareness on the importance of healthy diet which prevents malnutrition, over nutrition and
non-communicable diseases such as hypertension, diabetes, cardio-vascular diseases and
different types of cancer. As such, several government agencies required food chains to indicate
nutritional facts for each meal that they will be offering, which, in turn, affected fast-food
companies’ customers who are becoming more health conscious.
In terms of franchising, there are legal requirements and copyrights for the brands; since
there are instances that competitors try to imitate or copy a brand and/or the products a
competitor offer.
On the other hand, with employment matters, the Department of Labor and Employment
released the top list of labor-only contracting companies. According to the list, McDonald’s
Foods Corporation (JFC) has the most contractual employees, with 14,960 workers. DOLE
National Capital Region Director Henry John Jalbuena said in a press statement that his office
ordered McDonald’s to regularize 6,482 workers deployed by two contractors. DOLE also
ordered McDonald’s to refund 426 workers more than P15 million in "illegally collected
payments" from the company's "Coop Share, Coop Christmas Paluwagan Fund, and Coop
Savings Fund." In a statement sent to Rappler, McDonald’s said it is following the process
DOLE had prescribed to appeal the order. McDonald’s said it remains committed to “complying
with the law and DO 174, which allow contracting arrangement with legitimate Service Provider,
in compliance with regulations, we only deal with reputable Service Contractors that have been
duly accredited and registered with DOLE. We have been cooperating and will continue to
cooperate with DOLE," McDonald’s said. Five of McDonald’s contractors were also ordered to
return P4,137,158.15 in "unlawful wage deductions, bonds, donations, shares, and other illegal
payment collections" to 412 workers
III. MARKET OUTLOOK

SHORT-TERM OUTLOOK

The past year was a good one for McDonald's (NYSE:MCD) investors. Sure, the fast-food giant

returned less than 5%, which might seem disappointing to some shareholders. However, that

result outpaced the broader market's decline -- particularly in the waning weeks of 2018, when

surging volatility sank many portfolios. It also came with an over 2% dividend yield that was

well supported by rising profits.

It's anyone's guess what the selling environment will look like in the fast-food industry over the

next 12 months, but there are a few things McDonald's investors can be reasonably sure to see

from the company in 2019.

Let's take a closer look.

Spending will rise

McDonald's recent results have had a good news/bad news rhythm over the last few quarterly

reports. On one hand, global sales are rising at a market-thumping pace, including by 4% in the

third quarter of 2018. That metric stacks up well against peers like Taco Bell or Starbucks, who

are growing at closer to 2%. However, McDonald's has seen customer traffic decline in the U.S.

in each of the last three quarters.

Management is planning many of the usual initiatives to get traffic back into positive territory.

These include aggressive value pricing, menu upgrades, and limited-time offerings.

However, the bigger test will be in its store remodeling strategy. By the end of 2019, the

company will outfit its U.S. locations with modern fixtures like ordering kiosks and digital menu

screens while adding home delivery functionality. McDonald's believes these changes will

accelerate growth, just as they have in international markets like France and Canada. But while

the sales boost is unclear, the spending is immediate and concrete. The chain plans to shell out

$1.6 billion toward this sales-boosting goal in 2019.

McDonald’s (NYSE: MCD) released its full year results on January 30, 2019. The company beat

the consensus earnings but missed slightly on revenue for the 4th Quarter. This is primarily due

to the refranchising of its restaurants that the company has been undertaking for a couple of

years. The company’s long-term goal is for 95% of McDonald’s restaurants to be owned by

franchisees, and at the end of FY 2018, this figure stood at 92.7%. Overall the company posted

revenue of $21.03 billion with earnings of $7.50, up 18% year on year as the strategy has also

helped them in cutting down costs and thus improving margins. Global comparable sales also

improved by 4.5% YOY.

We have a $191 price estimate for McDonald’s. The charts have been made using our new,

interactive platform. The various driver assumptions can be modified by clicking here for our

interactive dashboard on Our Outlook For McDonald’s in FY 2019, to gauge their impact on the

revenue, earnings, and price per share metrics.

LONG-TERM OUTLOOK

Since forecasting becomes more difficult further into the future, broker analysts generally project

out to around three years. To reduce the year-on-year volatility of analyst earnings forecast, I’ve

inserted a line of best fit through the expected earnings figures to determine the annual growth

rate from the slope of the line.

By 2021, MCD’s earnings should reach US$6.7b, from current levels of US$5.2b, resulting in an

annual growth rate of 5.0%. EPS reaches $9.47 in the final year of forecast compared to the

current $6.43 EPS today. With a current profit margin of 23%, this movement will result in a

margin of 30% by 2021.

IV. SWOT ANALYSIS

Strengths:
 The McDonald's Corporation revenues come from the rent, royalties, and fees paid by the
franchisees, as well as sales in company-operated restaurants world's second-largest
private employer with 1.9 million employees, 1.5 million of whom work for franchises.
 McDonalds is a more established in the fast food industry.
 McDonalds is liquid in terms of cash and short term investments where management
might be delaying payables and taking receivables.
 McDonalds has high levels of standardization which seek to ensure that the product and
service are of the same levels wherever a customer is in the world. This is assisted by
strict standards for food preparation which is part of the staff training and development
for both companies owned and franchised stores [ CITATION Bus17 \l 13321 ].

Weaknesses:
  McDonalds show decrease of Sales revenue from 2017 to 2018; this might be the effect
of global events.
 McDonalds have bigger liabilities resulting to unbalanced total liabilities and assets but
still averaging in the industry.
 The increased franchising efforts of McDonalds’s may result in to inconsistent service
levels at each McDonalds outlet.

Opportunities:
 Modernization has made it conceivable to put resources into an organization arranged
thousand miles from the financial specialist. It is workable for a man to claim a little
piece of a business arranged on the opposite side of the world. This has been conceivable
in view of a capital market. Where the financial specialists contribute their cash and sit
tight for the organization to perform and procure an incentive for them.
 Investing Filipino people is getting bigger and bolder when compared to past generations.
 There are also opportunities for McDonalds to increase its sustainability through
providing appropriate recycling facilities which may assist with its attempts to become a
more responsible business. This would also help demonstrate its commitment to
sustainability to stakeholders, such as the government and its customers. [ CITATION
Bus17 \l 13321 ]

Threats:
 Government trying to push to end contractualization in the fast food industry[ CITATION
Mar19 \l 13321 ]
 Global events affect both companies for they both play within the Global market.
V. PROPOSED FINANCIAL STRATEGIES AND ITS IMPACT

FINANCIAL STATEMENTS
INCOME STATEMENT (2017 and 2018)
REVENUES
 McDonald’s Corp.’s revenues declined from 2017 to 2018.

OPERATING INCOME
 McDonald’s Corp.’s operating income slightly declined from 2017 to 2018.

INCOME BEFORE TAX

 McDonald’s Corp.’s income before provision for income taxes slightly declined from
2017 to 2018.

NET INCOME
 McDonald’s Corp.’s net income increased from 2017 to 2018.

STATEMENT OF FINANCIAL POSITION

CURRENT ASSETS
 McDonald’s Corp.’s current assets declined significantly from 2017 to 2018.
NET PROPERTY AND EQUIPMENT
 McDonald’s Corp.’s net property and equipment increased from 2017 to 2018.
LONG-TERM ASSETS
 McDonald’s Corp.’s long-term assets increased from 2017 to 2018.
TOTAL ASSETS
 McDonald’s Corp.’s total assets slightly declined from 2017 to 2018.
CURRENT LIABILITIES
  McDonald’s Corp.’s current liabilities slightly increased from 2017 to 2018.
LONG-TERM LIABILITIES
 McDonald’s Corp.’s long-term liabilities increased from 2017 to 2018.
TOTAL LIABILITIES
 McDonald’s Corp.’s total liabilities increased 2017 to 2018.
SHAREHOLDER’S EQUITY
 McDonald’s Corp.’s shareholders’ equity (deficit) increased from 2017 to 2018.

STATEMENT OF CASH FLOWS

Cash from Operating Activities
 McDonald’s Corp.’s cash provided by operations increased from 2017 to 2018.
Cash from Investing Activities
 McDonald’s Corp.’s cash (used for) provided by investing activities declined
significantly from 2017 to 2018.
Cash from Financing Activities
 McDonald’s Corp.’s cash provided by (used for) financing activities slightly declined
from 2017 to 2018.

KEY FINANCIAL
RATIOS
 2018 2017

CURRENT RATIO
 Current ratio of the company shows that, company
actual current ratio performance. Current ratio of the
company suggests that, it has strong positions than
previous year.

LONG-TERM DEBT TO CAPITAL

 Debt equity ratios of the company suggest that,
company has majorly dependent on the debt than
equity. As the company has acquire more than 52% of
shares with itself in order to maintain the decision
making. Therefore it can be said that, company is
basically a capital intensive rather than labour intensive
(www.aboutmcdonalds.com, 2015).
DEBT TO EQUITY
 Debt to Equity increased from 2017 to 2018 but it can
be clearly seen that company is higher dependent on the
debt than equity. Although it is very much risky form
of decision making because the company has to pay the
high interest rates irrespective of the company
performance (Sondi & White, 2014).
INVENTORY TURNOVER
 Inventory turnover ratio of the company suggests that, McDonalds is having higher sales
in compare to year 2017. As the company has come up with new and better ideas to
formulate the recipe and keep attracting the customer. Although new recipes like Matcha
Sundae, shake shake fries are popular but company fails resulting to a decrease its
inventory turnover ratio. As the standard format the lower the inventory turn ratio is the
better chances of the increase in sales.
ASSET TURNOVER
 The total asset of the turnover of the company represents the efficiency of the ratio that
help to analyze the company capability to generate the sales from its existing total asset.
The asset turnover ratio of the McDonalds is 0.76 in YR 2018 in compare to the YR 2017
which is showing higher. This is because McDonalds has closed more than 68 restaurants
of their chain in US because of lower productivity and sales (Hashemi, 2013). In France,
more than 2100 employees of restaurant went for strike and lock out because of the hiring
and firing process of the McDonalds.
RETURN ON ASSETS
 The ROA in 2018 have increased significantly therefore suggesting that McDonald’s
have succeeded in generating sales through their franchised branches and therefore had a
significant growth since 2017.

OVERALL SUMMARY OF FINANCIAL FINDINGS

In 2018, global comparable sales increased 4.5% and global comparable guest counts
increased 0.2% .
• Comparable sales in the U.S. increased 2.5% and comparable guest counts decreased 2.2%. The
increase in comparable sales was driven by growth in average check resulting from both product
mix shifts and menu price increases.
• Comparable sales in the International Lead segment increased 5.8% and comparable guest
counts increased 2.4%, reflecting positive results across all markets.
• Comparable sales in the High Growth segment increased 4.1% and comparable guest counts
increased 1.8%. This performance reflects positive results across most of the segment, led by
strong performance in Italy and the Netherlands.
• Comparable sales in the Foundational Markets increased 7.1% and comparable guest counts
increased 1.5%, reflecting positive sales performance in Japan and across all geographic regions.

In addition to improved comparable sales and consolidated guest count performance, the
Company achieved the following financial results in 2018:
• Due to the impact of the Company's strategic refranchising initiative, consolidated revenues
decreased 8% ( 8% in constant currencies). • Systemwide sales increased 6% (6% in constant
currencies).
• Consolidated operating income decreased 8% ( 8% in constant currencies). 2018 results
included non-cash impairment and strategic restructuring charges. 2017 results reflected a gain
on the sale of the Company's businesses in China and Hong Kong, partly offset by restructuring
and impairment charges. Excluding these items in both years, consolidated operating income
increased 2% (2% in constant currencies).
• Operating margin, defined as operating income as a percent of total revenues, increased from
41.9% in 2017 to 42.0% in 2018. Excluding the items described in the previous bullet point,
operating margin increased from 38.8% in 2017 to 43.1% in 2018.
• Diluted earnings per share of $7.54 increased 18% (18% in constant currencies).
• Cash provided by operations was $6.97 billion. • Capital expenditures of $2.74 billion were
allocated mainly to reinvestment in existing restaurants and, to a lesser extent, to new restaurant
openings.
• Free cash flow was $4.23 billion.
• Across the System, about 1,100 restaurants (including those in our developmental licensee and
affiliated markets) were opened. • One-year ROIIC was (80.4% ) and three-year ROIIC was
78.0% for the period ended December 31, 2018 . Excluding the gain from the sale of businesses
in China and Hong Kong, as well as significant investing cash inflows from strategic
refranchising initiatives.
• The Company increased its quarterly cash dividend per share by 15% to $1.16 for the fourth
quarter, equivalent to an annual dividend of $4.64 per share. • The Company returned $8.5
billion to shareholders through share repurchases and dividends for the year and increased the
cash return to shareholder target for the 3-year period ending 2019 to about $25 billion.

PROPOSED FINANCIAL STRATEGIES AND ESTIMATED IMPACT

The strength of the alignment among the Company, its franchisees and suppliers
(collectively referred to by McDonald’s as the "System") is key to McDonald's long-term
success. By leveraging the System, McDonald’s is able to identify, implement and scale ideas
that meet customers' changing needs and preferences. McDonald's continually builds on its
competitive advantages of System alignment and geographic diversification to deliver consistent,
yet locally relevant restaurant experiences to customers as an integral part of their communities.
In 2018, the Company continued to evolve to a more heavily franchised business model,
and is currently about 93% franchised, with a long-term goal of approximately 95%. The
Company will continue to make progress toward this long-term goal in 2019 primarily by
refranchising restaurants to conventional licensees. As a result of the continued evolution of the
Company’s business model, in September 2018, the Company announced several organizational
changes to its global business structure. These changes are designed to continue the Company's
efforts toward efficiently driving growth as a better McDonald’s through the Velocity Growth
Plan.

Effective January 1, 2019, McDonald’s is operating with the following global business
segments:
• U.S., the Company's largest market.
• International Operated Markets (IOM), comprised of wholly-owned markets, or countries in
which the Company operates restaurants, including Australia, Canada, France, Germany, Italy,
the Netherlands, Russia, Spain and the U.K.
• International Developmental Licensed Markets (IDL), comprised primarily of developmental
licensee and affiliate markets in the McDonald’s system.

As for strictly speaking, the financials of McDonald’s as seen on the ratios above are highly
dependent with loans that entails interest rates and also they tend to have more foreign currency
transactions since they operate globally. Therefore, our recommended strategies are the
following:

1. Since McDonald’s is competing globally, we advise them to use option and forward
contracts in buying their supplies from other countries of different currencies in order that
they may lessen the impact of the changes of the foreign exchange rate which is also
 volatile. Like for example in the Philippines, there is the Train law which will make a
higher peso to dollar exchange and increase the prices of supplies.
2. MCDONALD’S CORPORATION is highly leveraged which means highly dependent on
loans therefore is exposed to the volatility of interest rates. McDonald’s should also
check on its contract or agreements with financing companies or lending companies so
that it can take advantages of their terms and limit its exposure to very high interest rates.
3. We also have observed that McDonald’s have a lot of cash and should use some of these
excess funds to pay off its long-term debts to minimize the interest rates that have to be
paid alongside these long term loans.

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