Macdonald's Case

COORDINATES

To: Jim Skinner, Vice-Chair and CEO McDonald's

From: JMSB Consultants: Ashley Gower, Mahi Mourad, Jia Qi Ruan, and

Diandra Steavu

Date: December 2010

Subject: Financial Analysis of McDonald's

MAIN ISSUES

1. Is the company maintaining its profitability and should it make changes to their current business strategy.

RECOMMENDATIONS

1. Maintain sales and revenue growth by following current business strategy.

ANALYSIS

Quantitative:

When analyzing the 2010 year end financial reports of McDonald's against those of the two previous years, it can be seen that the company has maintained a constant growth in regards to sales and revenue. Earnings per share has increased over the last two years from $3.76 in 2008 to $4.11 in 2009 and finally to $4.58 in 2010. The company's operating margin has also seen an steady increase over the last two years from 27.4% in 2008 to 31.0% in 2010; a 3.6% increase in two years. Moreover, the company was able to pay out almost double the amount of dividends in this last year than it could in 2008; from $1.8 billion to $2.4 billion in 2010. McDonald's experienced its highest total revenue of $24.075 billion dollars in the past year compared to revenues over the last 6 years. Franchise total sales (globally) significantly increased from $54,152 in 2008 and $56,928 in 2009 to $61,147 in the last year. Total assets increased 7% in 2010. The asset turnover rate also increased from 0.525 in 2009 to 0.544 in 2010. Return on equity in 2010 was 0.51066 compared to the two previous years; 0.4874 in 2009 and 0.4814 in 2008.

Qualitative:

The McDonald's stock has continued to grow during the past six years and has also been able to outperform the S&P 500 Index as well as the Dow Jones Industrial. Thus, this shows that the company is on a positive and effective growth pattern. Judging by the financial analysis and the valuation results, it can be concluded that the business plan used by McDonald's during the past eight years has been performing well.

However, the market is in a volatile state due to the increase in consumer's need for healthy foods. The public's opinion on fast food has not been as optimistic as it once was, hence, continued research on alternative menu items would be required to satisfy the change in consumer