FACULTY

Management And Economics

DEPARTMENT

Accounting And Finance

COURSE NAME

Financial Management

COURSE CODE

PFM3023

SESSION

1, Sem. 2021/22

PREPARED BY

NAMA NO MATRIK

RAHIAH BINTI ZULKIFLE D20211097967

THENMOHLEE A/P MAHADEVAN D20211097969

SHARSINIGA A/P ANASELVEN D20211097970

DINESHWARY A/P MANORAH D20211097975

1
INDEX

NO. TITLE PAGE

1.0 Introduction 3

2.0 Financial Report of KFC Ltd. and McDonald’s Corporation 4-5

3.0 Analysis of Financial Statement

• Liquidity and efficiency ratio 6-9

• Solvency ratio
• Profitability ratio
• Market prospects

4.0 Financial Performance

• Liquidity of the organization

• Adequate operating profit 10-14
• Organization financing its assets
• Good return on equity

5.0 Success Factors and Risks 15-17

6.0 Projections and Recommendations 18-19

7.0 Conclusion 20

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1.0 INTRODUCTION

For our group assignment, we choose two companies from the food industry, which are KFC
and McDonald’s. First, let us look at the business background for KFC. KFC is the short form
for Kentucky Fried Chicken. It is the world's largest chain of fried chicken fast food restaurants.
KFC is recognized as the world’s second largest fast food franchise restaurant worldwide after
McDonald’s. This business existed since the early of 1952. The founder of this business is
Colonel Harland Sanders. This business headquartered in Louisville, Kentucky and then moved
to Dallas, Texas. He successfully created delicious fried chicken by using only 11 types of
herbs and spices as the ingredients. Now, KFC has more than 22000 outlets in over 150
countries according to the data collected until December 2019 and over 24000 outlets in 2020.
KFC opened its first branch in Malaysia in 1973 on Jalan Tunku Abdul Rahman. The slogan
for KFC is “It’s Finger Lickin’ Good”. KFC sells products such as fried chicken, hamburgers,
chicken sandwiches, wraps, french fries, soft drinks, milkshakes, salads, desserts and breakfast.
This company’s revenue is recorded as US $27.9 billion in 2020.

Now, let us look at McDonald’s. McDonald’s is an American fast-food company. It is the

world's largest chain of hamburger fast food restaurants and also recognized as the world’s
largest fast food franchise restaurant worldwide. This business has existed since 1940. The
founders of this business are Richard and Maurice McDonald. They opened their first
restaurant in Des Plaines, Illinois. After that, a businessman named Ray Kroc founded the
McDonald’s corporation and decided to purchase that fast food company in 1955. This business
headquartered in Oak Brook, Illinois and then moved its global headquarters to Chicago in
2018. Now, McDonald’s has more than 38000 restaurants in over 119 countries according to
the data collected until 2019. McDonald’s opened its first branch in Malaysia in 1982 on Jalan
Bukit Bintang, Kuala Lumpur. The slogan for McDonald’s is “I’m Lovin’ It”. McDonald’s
sells products such as hamburgers, chicken, french fries, soft drinks, soft serves, milkshakes,
salad, desserts, hotcakes, coffee, breakfast and wraps. This company’s revenue is recorded as
US $21.076 billion in 2019.

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 2.0 FINANCIAL REPORT OF KFC LTD.

PARTICULARS 2019 2020

Total Assets 23,777,212 24,706,598

Current Assets 15,635,927 16,975,657

Cash, Cash Equivalents & Short-Term Investments 4,493,594 4,875,791

Inventory 2,274,748 2,356,855

Account Receivable 1,300,000 1,200,000

Other Current Assets 2,108,987 2,496,306

Total non-current assets 8,141,282 7,730,939

Total Liabilities Net Minority Interest 9,561,779 8,852,607

Current Liabilities 9,031,197 8,496,957

Total Non-Current Liabilities Net Minority Interest 530,582 355,650

Other Non-Current Liabilities 14,343 14,344

Total Equity 14,215,433 15,853,991

Stockholders' Equity 14,211,339 15,847,009

Total Debt 971,522 675,222

Total Revenue 24,674,004 28,459,164

Operating Profit 2,237,623 2,983,242

Net Income 1,562,779 2,103,650

Interest Expense 12,739 8,956

EBIT 2,330,797 3,063,683

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 2.0 MCDONALD’S CORPORATION

PARTICULARS 2019 2020

Total Assets 47,510,800 52,626,800

Current Assets 3,557,900 6,243,200

Cash, Cash Equivalents & Short-Term Investments 898,500 3,449,100

Inventory 50,200 51,100

Account Receivable 2,224,200 2,110,300

Other Current Assets 435,200 683,800

Total non-current assets 43,952,900 46,383,600

Total Liabilities Net Minority Interest 55,721,100 60,451,700

Current Liabilities 3,621,000 6,181,200

Total Non-Current Liabilities Net Minority Interest 52,100,100 52,100,100

Other Non-Current Liabilities 979,600 1,054,100

Total Equity 8,210,300 7,824,900

Stockholders' Equity 8,210,300 7,824,900

Total Debt 47,556,000 51,463,200

Total Revenue 21,076,500 19,207,800

Operating Profit 8,885,900 7,206,500

Net Income 6,025,400 4,730,500

Interest Expense 1,121,900 1,218,100

EBIT 9,140,000 7,358,800

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 3.0 ANALYSIS OF FINANCIAL STATEMENT

KFC

RATIO USED FORMULA 2019 2020

Current ratio 15635927 16975657

Current assets
9031197 8496957
Current liabilities
= 1.73 = 2.00

Quick ratio Current assets - Inventory

15635927 - 2274748 16975657 - 2356855
Current liabilities
9031197 8496957

= 1.48 = 1.72

Account receivable turnover

Net sales 24674004 28459164
ratio
Average account receivable 1300000 1200000

= 18.98 = 23.72

Average collection period

Account receivable 1300000 1200000
Annual credit sales ÷ 365 24674004 ÷ 365 28459164 ÷ 365

= 19.23 days = 15.39 days

Debt ratio
Total debt 297152 675222
Total assets 23777212 24706598

= 0.040 = 0.027

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 Fixed asset turnover
Sales 24674004 28459164
Net fixed assets 4676970 4589449

= 5.28 = 6.20

Sales 24674004 28459164

Total asset turnover
Total assets 23777212 24706598

= 1.04 = 1.15

Operating profit margin

Operating profit 2237623 2983242
Sales 24674004 28459164

= 0.09 = 0.10

Return on asset
Net income 1562779 2103650
Total assets 23777212 24706598

= 0.07 = 0.09

Return on equity
Net income 1562779 2103650
Average stockholder 14211339 15847009
equity
= 0.11 = 0.13

Times interest Operating profit 2237623 2983242

earned Interest expense 12739 8956

= 175.65 times = 333.10 times

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 MCDONALD

RATIO USED FORMULA 2019 2020

Current ratio
Current assets 3557900 6243200
Current liabilities 3621000 6181200

= 0.98 = 1.01

Quick ratio
Current assets - Inventory 3557900 - 50200 6243200 - 51100
Current liabilities 3621000 6181200

= 0.97 = 1.00

Account receivable Net sales 21076500 19207800

turnover ratio Average account receivable 2224200 2110300

= 9.48 = 9.10

Average collection Account receivable 2224200 2110300

period Annual credit sales ÷ 365 21076500 ÷ 365 19207800 ÷ 365

= 38.52 days = 40.10 days

Debt ratio
Total debt 47556000 51463200
Total assets 47510800 52626800

= 1.00 = 0.98

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 Sales 21076500 19207800
Fixed asset turnover
Net fixed assets 37421200 38785900

= 0.56 = 0.50

Total asset turnover

Sales 21076500 19207800
Total assets 47510800 52626800

= 0.44 = 0.36

Operating profit margin

Operating profit 8885900 7206500
Sales 21076500 19207800

= 0.42 = 0.38

Return on asset
Net income 6025400 4730500
Total assets 47510800 52626800

= 0.13 = 0.09

Return on equity
Net income 6025400 4730500
Average stockholder equity 8210300 7824900

= 0.73 = 0.60

Times interest earned

Operating profit 8885900 7206500
Interest expense 1121900 1218100

= 7.92 times = 5.92 times

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4.0 FINANCIAL PERFORMANCE

1)

2.5
Current Ratio 2
Quick Ratio
1.72
2
2 1.73 1.48
1.5
1.5 0.97 1
0.98 1.01 1
1
0.5
0.5

0 0
2019 2020 2019 2020
KFC MCD KFC MCD

The current ratio is used to measure a company’s ability to pay short term obligations
calculating together with inventory, while quick ratio is the same but without including
inventory. The current ratio shows that KFC has $1.73 in current assets for every $1 in current
liabilities compared to McDonald’s which has $0.98 in current assets for every $1 in current
liabilities in 2019. While in the following year 2020, KFC has $2 and McDonald’s has $1.01.
Moving on to the quick ratio, KFC has $1.48 in quick assets for every $1 in current debt
compared to McDonald’s which has $0.97 in quick assets for every $1 in current debt in 2019.
The figure changed in 2020 with KFC having $1.72 and McDonald’s with $1 quick assets for
every $1 current debt. Besides, if we refer to the account receivable turnover and average
collection period ratios, we can clearly see that McDonald’s is definitely less liquid than KFC.
For example, KFC is slightly slow to roll up their account receivable, which is 18.98 times in
2019 and 23.72 times in 2020, but manage to collect accounts receivable in a very short time
which are about 19 days (2019) and 15 days (2020) compared to McDonald’s which take such
long time like 39 days in 2019 and 40 days in 2020. Therefore, we can conclude that in both
years, McDonald’s liquidity is lower than KFC.

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2)

8
Fixed asset turnover 1.5
Total asset turnover
6.2 1.15
6 5.28 1.04
1
4
0.44
0.5 0.36
2
0.56 0.5
0 0
2019 2020 2019 2020
KFC MCD KFC MCD

The fixed asset turnover ratio shows that KFC has $5.28 in sales for every $1 invested in fixed
assets compared to McDonald’s which has $0.56 in sales for every $1 invested in 2019. While
in the following year 2020, KFC has $6.20 and McDonald’s has $0.50. Moving on to the total
asset turnover, KFC has $1.04 in sales for every $1 invested in assets compared to McDonald’s
which has $0.44 in sales for every $1 invested in assets in 2019. The figure changed in 2020
with KFC having $1.15 and McDonald’s with $0.36 sales for every $1 invested in assets.
Besides, if we refer to the operating profit margin and return on asset ratios, we can clearly see
that McDonald’s is less adequate in generating operating profits than KFC. For example, KFC
manages their cost of goods sold and operating expenses better and get to increase their profits
from 9% in 2019 to 10% in 2020, while McDonald’s have downs in their performance in 2020.
The return on asset also increased for KFC from 7% to 9%, while McDonald’s decrease from
13% to 9% in the process to generate operating profits for every $1 of assets. Therefore, we
can conclude that in both companies able to generate good profits, however when it comes to
comparison, KFC is generating a better operating profit compare to McDonald’s.

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3)

Debt Ratio

1 0.98
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1 0.04 0.027
0
2019 2020
KFC McD

Debt ratio indicates the percentage of the firm’s assets that are financed by debt
(implying that the balance is financed by equity). KFC finances 4% of its assets by debt
and 96% by equity compared to McD financing 100% of its assets by debt in the year
2019 while in 2020 KFC finances 2.7% of its assets by debt and 97.3% by equity
compared to McD financing 98% of its asset by debt. In the 2 years, the both companies
are managing their debt ratio with a slightly decreasing trend in 2020. Since KFC has
the lowest ratio, this implies that KFC is more stable and has high potential.

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 TIMES INTEREST EARNED TIMES INTEREST EARNED
350 333.1 10
9
300 7.92
8
250 7
5.92
6
200 175.65
5
150 4
3
100
2
50 1
2019 2020 2019 2020

KFC McD

Times Interest Earned indicates the amount of operating income available to service
interest payments. This ratio indicates if a firm is may be run into financial challenges.
KFC’s operating profit is approximately 175 times the annual interest expense and
higher than McD (7.92 times) due to its relatively higher operating profits in 2019.
Similarly, in 2020 KFC’s operating income is roughly 335 times the annual interest
expense and also higher than the McD which is nearly 6 times due to the same reason
as the previous year.

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4)

RETURN ON EQUITY
1
0.9
0.8 0.73
0.7
0.6
0.6
0.5
0.4
0.3
0.2 0.13
0.11
0.1
0
2019 2020

KFC McD

The accounting return on common stockholders' investment, or return on equity, is used to

analyse return on equity (ROE). In 2019, KFC is earning a lesser return (11%) than McDonald's
(73%). In 2020, KFC's return on equity improved by 2%, while McD's declined by 13%,
resulting in a 60 percent difference. The lower operational return on assets created by KFC is
one of the causes for the lower ROE (7 percent for KFC vs 13 percent for McD). A lower return
on assets always translates to a lower return on equity, and vice versa. Furthermore, in both
years, KFC utilizes less debt than McDonald's. Under favourable business conditions, more
debt equates to a better return on equity (ROE).

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5.0 SUCCESS FACTOR AND RISK

• Market share - Market share is a key indicator of a company’s competitiveness. When

a company increases its market share, this can improve its profitability. This is because
as companies increase in size, they too can scale, therefore offering lower prices and
limiting their competitors' growth. In some cases, companies may go so far as
operating at a loss in some division in order to push out the competitors or force them
into bankruptcy. After this point, the company may increase its market share, and
further increase prices. In financial markets, market share can greatly affect stock
prices, especially in cyclical industries when margins are narrow and competition is
fierce. Any marked difference in market share may trigger weakness or strength in
investor sentiment. For example, KFC has 50,000 units sold per year in a given
industry, the company whose sales were 5,000 of those units would have a 10 percent
share in that market.

• Reputation - Firms with strong positive reputations attract better people. Like KFC,
they are perceived as providing more value, which often allows them to charge a
premium. Their customers are more loyal and buy broader ranges of products and
services. Because the market believes that such companies will deliver sustained
earnings and future growth, they have higher price-earnings multiples and market
values and lower costs of capital. For an example, MCD have took seriously in
communicating. They need to be ready at all times to clearly communicate with their
customers. This applies to everything from their website and social media pages to their
promotional brochures and formal business letters.

• Human resources -The function of Human Resource Management contributes an

important role in assuring employee satisfaction, develop business productivity and
performance. It can also provide the organization with a clear vision of competitive
advantage and contribute affectively to the organizational success in general. For
example, MCD has concerns about their employees so they contact the Human
Resources department for assistance. If MCD employee or manager have a conflict,
the human resources department can help find a solution. And the department makes
sure that all the employees are receiving appropriate training so that they can perform
their duties efficiently.

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 • Physical facilities - A healthful work environment brings safety to employees’ physical
and mental capabilities in performing their daily routine. In order to reach the healthful
work environment, providing the healthful facilities must be taking into account. The
examples of facilities are chair seating and lighting in KFC company. A proper chair
seating and sufficient lighting play important role in ensuring employees’ welfare are
protected as well their work performance goes up. The ignorance of these important
healthful work environments will lead to work stress.

RISK

is the company vulnerable to technological changes?

yes, and there are several risks that company have to faced it including:

• Business Loss / System Failure

Software upgrades that cause unexpected system disruptions can result in lost KFC
and MCD company for their customers and claims for damages if they’re unable to
do business. To protect technology companies from financial damages if servers are
disrupted, KFC and MCD get an insurance to helps cover loss of business income
and helps to mitigate the costs of legal action brought on by customers if operations
are interrupted as a result of a covered loss.

• Data Security and Privacy

The negative publicity from a data breach or other cyber-attack is compounded by

the financial penalties and lawsuits that may accompany a network security lapse.
Hackers continuously look for vulnerabilities in electronic business perimeters and
a cyber-attack can have significant financial and operational consequences., it was
reported that KFC faced a breach that exposed the personal information of 500
million customers. Through the attack, the hackers were able to gain access to
names, phone numbers, emails, passport numbers, and payment information of
customers. With breaches like this on the rise, companies are facing the difficulty
of gathering this data without violating their users’ privacy or exposing their
personal information to malicious actors.

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• Fairness and equity

Machine learning continues to be an exciting form of disruptive technology for

many applications because it offers the possibility of removing human biases
from the equation when making important judgments and decisions. However,
this is only effective if the dataset and model are themselves free of bias.
In October 2018, for example, MCD had reportedly scrapped a machine
learning tool for selecting the top resumes among its job candidates because the
system discriminated against women. The bias was apparently due to the fact
that the tool was trained on a dataset of resumes from previous applicants, who
were predominantly male.

• Compliance and Legal Violations

Consumers and regulators expect companies to identify, address, and mitigate

risks surrounding the privacy and protection of consumer data in the cloud.
While this means keeping abreast of current and upcoming data protection
legislation KFC company, compliance and risk mitigation measures need to
extend beyond simply complying with legislation. Consumers increasingly
want companies to be fully transparent about where their data goes, who sees it,
and what will be done with it.

• Increased Costs

So, where is your money best spent maintaining antiquated systems, or driving new
business value? Outdated legacy systems can be expensive to maintain. It's really
not much different than maintaining a very old home or vehicle, except that
technology ages at a much faster rate. for example, MCD, their technology is
getting more and more sophisticated, therefore, to upgrade each of their services,
they require very high cost and that will put risk to the business.

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6.0 PROJECTIONS AND RECOMMENDATIONS

Both companies are more stable and has a better return on investment. Both companies showed
concerns in areas of cash flow, debt, and capital debt even though it has higher growth rates
and shows an upward trend.

Both companies have as attracted a huge clientele, due to its exemplary performance and
efficiencies of its services, KFC and McDonald has managed to adopt an attractive workforce
base in most of its outlets, which has improved efficiency and management in its services. The
top managements take keen interest in their financial statement analysis, using information
derived from all their assessment in making top decisions, either increasing operating
efficiency, improving its chains, and establishing new opportunities. Besides, data derived
from financial ratio analysis exposes threats that the business may face, and develop
mechanisms on how can be able to absorb shocks and improve their quality in service
provision.

Recommendation:

1) Product value

Both companies should further enhance this value added to contribute more toward
their growth rate, as theirs recommend goal now is to regain the growth rate and market
share. For example, they establish a KFC and MC Donald cards, just like what Bonus
Link doing, they can collect points every time they buy products from KFC and MC
Donald Malaysia. By doing this their customer loyalty can be also be performed.

2) Maintain price for existing products

Both companies would be continue maintaining the current price of existing products.
Charges in price will not benefit KFC and McDonald because charging the products
with lower prices might lead to customer’s perceptions that the food quality will
decrease while charging prices for the products too high might cause the customers to
switch their preferences to competitor’s fast food.

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3) Advertising

Both companies would be continue maintaining advertising on the television,

newspaper, radio and internet. Moreover, both companies are highly recommended to
promote their new product advertising in public transport such as the bus walls in order
to increase the customer’s awareness about their launching new product.

4) Public relation

Both companies should endorse famous singer or celebrity to promote KFC and
McDonald meals through advertisement. It also could be done through the singing
concert that would be sung by the famous singers. Both companies could search
opportunity by collaborating among the rising famous singers in Malaysia and it would
help boost the sales. This could be done by giving half price concert ticket when
customer purchase particular meal. Furthermore, customer’s behaviours would tend to
like discount and half price incentives and it would assure both companies capture the
markets.

5) Keep collecting customer feedbacks

If you don not try to find out what your customers actually think about your products
or services, you will never able to give them the best customer experience. Their
opinions about experience they have with the products is helpful information that can
use to adjust the business to fit their needs more accurately.

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7.0 CONCLUSION

In a nutshell, we have learnt that both the fast-food companies, which are KFC and McDonald’s
are very stable in the food industry and have a better return on their investments. Both the
companies performed well in 2019 compared to in 2020. However, KFC and McDonald’s have
slight concern in their cash flows, and capital debt even though they are achieving a higher
growth rate year by year and continuously moving forward and in upward trend. The reason
those companies have attracted a large number of loyal customers worldwide is because of
their excellent performances and efficiencies of their services. KFC and McDonald’s manage
to cope, adapt to all kinds of challenges, give importance on customers’ feedback and create a
strong workforce base in all of their outlets worldwide, which make their management
developed and improved into another level. Moreover, the top management of these franchise
companies also take a keen interest in their financial statement analysis as well, using
information derived from all of their assessments in making top decisions for their companies.
For example, decisions in increasing their operating efficiency, improving their company
chains, and establishing new opportunities for more stable long-term growth in the industry.
Therefore, it is important for all the companies to give attention on the data derived from their
company’s financial ratio analysis because it will help to expose and identify the threats that
the businesses may face, and get to come out with a great alternative by developing mechanisms
on how they can be able to absorb the challenges in their industries at the same time improve
their quality in service provision.

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