Abby Ling Lili (0309127) Sim Wen Yi (0308610) Basic Accounting (FNBE 0145) FNBE March Intake 2012

Table of Content

Page

Company Background and Recent Development Ratio Calculations and Interpretation on the Ratios Results I. II. Profitability Ratios Financial Stability Ratios

2~3 4~5 6 7~8 9

P/E Ratio and Investment Recommendation (Appendix 1 & 2) Company P&L Statement and Balance Sheet for 2010 & 2011 References List

History of McDonalds In 1954, Ray Kroc the exclusive distributor of the Multimixer (milk shake maker), discovered how well the McDonald brothers were doing using his multimixer to serve the customer. The McDonald brothers are the owner of the hamburger restaurant in California. Ray Kroc was very impressed with the way the McDonald brothers employed in their business. So he proposed to the McDonald brothers the idea of giving him the right to open franchise. In 1955, Ray Kroc opened the first McDonald franchise in Des Plaines, Illinois. Then Ray Kroc persuaded other franchisees to join him in working with McDonalds. Therefore, McDonalds has grown and become well known around the world. Today, there are more than 33,000 McDonalds restaurants in 119 countries.

Profitability Ratios Profitability Ratios 2010 (Net Profit/Average Return on Equity (ROE) Owners Equity) x100% = [7473.1/(14634.2+ 14033.9)/2] x 100% = 52.14% (Net Profit/Net Sales) x Net Profit Margin (NPM) 100% = (7473.1/24074.6) x 100% = 31.04% 2011 (Net Profit/Average Owners Equity) x100% = [8529.7/(14390.2+ 14634.2)/2] x 100% = 58.78% (Net Profit/Net Sales) x 100% = (8529.7/27006) x 100% = 31.58% Interpretation During the period of 2010 to 2011, the ROE has increased from 52.14% to 58.78%. This means that the owner is getting more return on his capital. During the period of 2010 to 2011, the NPM has decreased from 31.04% to 31.58%. This means that the business ability of controlling the overall expenses is getting worse. (Gross Profit/Net Sales) x Gross Profit 100% (Gross Profit/Net Sales) x 100% = [27006(6167.2+4606.3 +4064.4)]/27006 x 100% = 45.1% (Total Selling Expenses/Net Sales) x 100% = [(2393.7/2)/27006] x 100% = 4.43% During the period of 2010 to 2011, the GPM has decreased from 45.75% to 45.1%. This means that the business ability of controlling the COGS is getting worse. During the period of 2010 to 2011, the SER has decreased from 4.85% to 4.43%. This means that the business ability of controlling its selling expenses is getting better.

Margin (GPM) = [24074.6-(5300.1+ 4121.4+3638)] / 24074.6 x 100% = 45.75% (Total Selling Expenses/Net Selling Sales) x 100%

Expenses Ratio = [(2333.3/2)/24074.6] x (SER) 100% = 4.85%

(Total General General Expenses/Net Sales) x

(Total General Expenses/Net Sales) x 100% = [(2393.7/2)/27006] x 100% = 4.43% (Total Financial Expenses/Net Sales) x 100% = (492.8/27006) x 100% = 1.82%

During the period of 2010 to 2011, the GER has decreased from 4.85% to 4.43%. This means that the business ability of controlling its general expenses is getting better. During the period of 2010 to 2011, the FER has decreased from 1.87% to 1.82%. This means that the business ability of controlling its financial expenses is getting better.

Expenses Ratio 100% (GER) = [(2333.3/2)/24074.6] x 100% = 4.85% (Total Financial Financial Expenses/Net Sales) x

Expenses Ratio 100% (FER) = (450.9/24074.6) x 100% = 1.87%

Financial Stability Ratios Stability Ratios 2010 Total Current Working Capital (WC) Ratio Assets/Total Current Liabilities ( 1:1) 4368.5 : 2924.7 = 1.49 : 1 2011 Total Current Assets/Total Current Liabilities ( 1:1) 4403 : 3509.2 = 1.25 : 1 Interpretation During the period of 2010 to 2011, the WC has decreased from 1.49:1 to 1.25:1. This means that the business ability to pay current liabilities by current assets is getting worse. In addition, it does not achieve the minimum 2:1. (Total Liabilities/Total Total Debt (TD) Ratio Assets) x 100% = [(31975.2-14634.2) /31975.2] x 100% = 54.23% 365 Days/(Cost of Goods Inventory Turnover (IT) Ratio Sold/Average Inventory) = 365/{(5300.1+4121.4+ (Total Liabilities/Total Assets) x 100% = [(32989.9-14390.2) /32989.9] x 100% = 56.38% 365 Days/(Cost of Goods Sold/Average Inventory) = 365/{(6167.2+4606.3+ During the period of 2010 to 2011, the TD has increased from 54.23% to 56.38%. This means that the business has carried more debt. In addition, it is above the 50% limits. During the period of 2010 to 2011, the IT has decreased from 3.02 days to 2.79 days. This means that the business is selling its goods faster.

3638)/[(109.9+106.2)/2]} 4064.4)/[(116.8+109.9) = 3.02 days /2]} = 2.79 days 365 Days/(Credit 365 Days/(Credit Sales/Average Debtors) = 365/{18292.8/[(1334.7 +1179.1)/2]} = 25.08 days

During the period of 2010 to 2011, the DT has decreased from 25.18 days to 25.08 days. This means that the business is collecting its debt faster.

Debtor Turnover (DT) Ratio

Sales/Average Debtors) = 365/{16233.3/[(1179.1 +1060.4)/2]}= 25.18 days

(Interest Expenses+Net Interest Coverage (IC) Profit)/Interest Expenses = (450.9+4946.3)/450.9 = 11.97 times

(Interest Expenses+Net Profit)/Interest Expenses = (492.8+5503.1)/492.8 = 12.04 times

During the period of 2010 to 2011, the IC has increased from 11.97 times to 12.04 times. This means that the business ability to pay its interest expenses is getting better.

Appendix 1: P/E Ratio Price/ Earnings Ratio = Current Share Price/ Earnings per share = 91.65/ 5.31 = 17.26 P/E Ratio measures how expensive a share is. And, a conservative investor normally will not pay more than P/E of 15 for a share. The P/E ratio above shows 17.26. This means that an investor will need to wait for about 17 years to claim back his/her original principal. Appendix 2: Investment Recommendation We think that the company is not profitable and stable. So, we think that the companys shares are not suitable for investment. This is because the Net Profit Margin (NPM) and Gross Profit Margin (GPM) Ratio (in Profitability Ratios) of this company have decreased. This means that business ability to control its overall expenses and Cost of Goods Sold are getting worse. Besides in Stability Ratios, its Working Capital (WC) Ratio also has decreased. This means that the business ability to pay its current liabilities by its current asset is getting worse. So, this means that its current liabilities are getting more and more while its current asset doesnt increase. In the other hand, the P/E Ratio of this company is more than 15. This means that investors have to wait longer time period to claim back his/her original principle and this may cause higher risks of their investment.

Profit and Loss Statement of McDonald

Balance Sheet of McDonalds

References List 1. Unknown. (2004-2011) About Us: The McDonalds Story. [Online] Available at: http://www.mcdonalds.com.my/abtus/corpinfo/history.asp [Accessed 15-01-2013] 2. Unknown. (2010-2013) About Us: Our History. [Online] Available at: http://www.mcdonalds.ca/ca/en/our_story/our_history.html [Accessed 15-01-2013] 3. Unknown. (2013) Google Finance: McDonalds Corporation. [Online] Available at: http://www.google.com/finance?q=NYSE:MCD [Accessed 17-01-2013]