DOMBIVLI SHIKSHAN PRASARAK MANDAL’S

K. V. PENDHARKAR COLLEGE OF
ARTS, SCIENCEAND COMMERCE (AUTONOMOUS).
Dombivli (East) 421203, Dist. Thane.

DEPARTMENT OF ACCOUNTING & FINANCE

SECOND INTERNAL EXAMINATION

SEMESTER V

Financial statement analysis of company (McDonald’s )

For the subject of

Financial accounting V

By

NAYANA RAVINDRA PANIGRAHI

Roll No.: 219159
TYBAF A Division

To the Subject Teacher

Prof. Shruti Bhosle

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 Content

SR.NO. Particular Pg. No

1. 1 Financial statement analysis of McDonald’s

Introduction
1

2. Financial statement analysis 2 to 7

1 Balance sheet
2 Income statement
3 Comprehensive Income
4 McDonald’s market value summary
5
Threats
6
Analysis

3. Comparative analysis of McDonald’s and Burger King 8 to 9

4. Conclusion 10

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 Financial statement analysis of McDonald’s

INTRODUCTION

cDonald’s Corporation is founded in 1940, by the two brothers Richard and Maurice McDonald
M in San Bernardino, California, the United States, The company that started 80 years ago, started
as a restaurant operated by the two brothers founders, is now globally operating in many locations,
expanding in global foreign markets by franchising, its impact on the economic activity is not to be
ignored. According to Chiou and Droge, “Franchising has become a major form of distribution,
wielding a significant economic impact throughout the world.[ CITATION Ver18 \l 1033 ] The
company revenues are made from direct sales and royalties paid by the franchisees, “McDonald’s
continues to be recognized as a premier franchising around the world. More than 90% of our
restaurants in the U.S. are owned and operated by our Franchisees”.
McDonald’s continues to be recognized as a premier franchising around the world. More than 90% of
our restaurants in the U.S. are owned and operated by our Franchisees”.[ CITATION USF20 \l 1033 ].
McDonald’s may not be the healthiest choice but the variety of the menu it offers to its customers, the
price, convenience, and proximity are the strong components employed in its marketing strategy. Some
green initiatives implemented by McDonald's for instance removing plastic toys from the happy meal in
an attempt to attract new potential green shareholders. According to a mini-review about green
investment, socially responsible Investment is about investing in business operating ethically and
morally (Al-Kaabi and Nobanee, 2020).
Effective planning and financial management are essential to any business sustainability, companies
need to carry a continuous assessment of its financial performance. Ratios are used by managers to find
out strengths and weaknesses and form strategies and initiative whereas funders use ratios to measure
the organization's financial performance and compare it to other organizations or eventually to evaluate
the management effectiveness and the impact of the mission.[ CITATION Fin13 \l 1033 ] Financial
ratios are created with the use of numerical values taken from the company’s financial statement to gain
meaningful information about a company - balance sheet and cash flow statement to perform
quantitative analysis and assess a company’s liquidity, leverage, growth, margins, profitability, rates of
return valuation and more.[ CITATION CFI20 \l1033 ]. For the ratios to be useful and meaningful they
need to be calculated reliably and consistently, the financial information needs to be accurate and
finally need to be interpreted in the proper context bearing in mind other indicators that are involved in
the performance assessment (AlEisaei and Nobanee, 2020). Ratios can be divided into four categories,
Profitability Sustainability, Operational efficiency, Liquidity, and Leverage.

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 Financial statement analysis

Balance sheet (Statement of financial position) ($ in millions)

Particular 12/31/2020 12/31/2019 12/31/2018 12/31/2017

ASSETS

Current Assets

Cash, cash equivalents, and short-term investments 3,449 899 866 2,464

Cash and cash equivalents 3,449 899 866 2,464

Receivables 2,110 2,224 2,442 1,976

Inventory, net of allowances, customer advances and progress 51 50 51 59

billings
Inventory 51 50 51 59

Disposal group, including discontinued operation 174

Other undisclosed current assets 633 385 695 654

Total current assets: 6,243 3,558 4,053 5,327

Noncurrent Assets

Operating lease, right-of-use asset 13,828 13,261 ✕ ✕

Property, plant and equipment 24,958 24,160 22,843 22,448

Long-term investments and receivables 1,297 1,270 1,203 1,086

Long-term investments 1,297 1,270 1,203 1,086

Intangible assets, net (including goodwill) 2,773 2,677 2,332 2,380

Goodwill 2,773 2,677 2,332 2,380

Other noncurrent assets 3,527 2,584 2,381 2,563

Total noncurrent assets: 46,384 43,953 28,758 28,477

TOTAL ASSETS: 52,627 47,511 32,811 33,804

LIABILITIES AND EQUITY

Liabilities

Current Liabilities

Accounts payable and accrued liabilities 2,098 1,905 1,987 1,744

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Accounts payable 741 988 1,208 925

Taxes payable 968 579 482 541

Interest and dividends payable 388 338 297 278

Debt 2,244 680

Disposal group, including discontinued operation

Other undisclosed current liabilities 1,840 1,036 987 1,146

Total current liabilities: 6,181 3,621 2,974 2,891

Noncurrent Liabilities

Long-term debt and lease obligation 48,518 46,876 31,075 29,536

Long-term debt, excluding current maturities 35,197 34,118 31,075 29,536

Operating lease, liability 13,321 12,758 ✕ ✕

Liabilities, other than long-term debt 5,752 3,906 5,021 4,645

Deferred revenue and credits ✕ ✕ 628

Accounts payable and accrued liabilities 1,971 2,266 2,081 2,371

Deferred revenue 702 661 ✕ ✕

Deferred tax liabilities, net ✕ ✕ 1,216 1,119

Deferred income tax liabilities 2,026 ✕ ✕

Other liabilities 1,054 980 1,096 1,154

Total noncurrent liabilities: 54,271 50,782 36,096 34,181

Total liabilities: 60,452 54,403 39,070 37,072

Stockholders' equity

Stockholders' equity attributable to parent (7,825) (8,210) (6,258) (3,268)

Common stock 17 17 17 17

Treasury stock, value (67,066) (66,329) (61,529) (56,504)

Additional paid in capital 7,904 7,654 7,376 7,072

Accumulated other comprehensive loss (2,587) (2,483) (2,610) (2,178)

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 Retained earnings 53,908 52,931 50,487 48,326

Total stockholders' equity: (7,825) (8,210) (6,258) (3,268)

Other undisclosed liabilities and equity 1,318

TOTAL LIABILITIES AND EQUITY: 52,627 47,511 32,811 33,804

MCD / McDonald’s Corp Balance Sheet shows account balances for the company at points in time. Balance Sheet data
includes Assets, Current Assets, Fixed Assets, Property, Plant and Equipment (PPE), Inventory, Intangibles, Liabilities,
Current Liabilities, Debt, Capital Lease Obligations, Common Stock, Retained Earnings, Treasury Stock, and
Shareholders Equity.

Income statement (P&L) ($ in millions)

Particular 12/31/2020 12/31/2018 12/31/2017
12/31/2019
Revenues 19,208 21,077 21,025 22,820

Revenue, net ✕ ✕ 21,025 22,820

Cost of revenue (9,639) (9,777) (10,002) (11,036)

Cost of goods and services sold (1,973) (1,790)

Gross profit: 9,569 11,299 11,023 11,784

Operating expenses (2,245) (2,229) (2,200) (2,231)

Other operating income (expense), net 118 184 237 1,163

Other expenses (267)

Other undisclosed operating income (loss) (118) (184) (237) (1,163)

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Operating income: 7,324 9,070 8,823 9,553

Nonoperating income (expense) 35 70 (25) (58)

Interest and debt expense (1,218) (1,122) (981) (921)

Income from continuing operations before equity method 6,141 8,018 7,816 8,574
investments, income taxes:

Loss from equity method investments

Income from continuing operations before income taxes: 6,141 8,018 7,816 8,574

Income tax expense (1,410) (1,993) (1,892) (3,381)

Net income: 4,731 6,025 5,924 5,192

Other undisclosed net income attributable to parent

Net income available to common stockholders, diluted: 4,731 6,025 5,924 5,192

MCD / McDonald’s Corp Income Statement shows changes in income and expenses over a period of time.
Income Statement data includes Sales and Revenue, Gross Profit, Research and Development
(R&D), Selling, General and Administrative Expense (SG&A), Operating Income, Income Tax Expense,
Interest Expense, Non-Operating Income, Earnings per Share (EPS), and Shares Outstanding.

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 Comprehensive Income ($ in millions)
Particular 12/31/2020 12/31/2019 12/31/2018 12/31/2017

Net income: 4,731 6,025 5,924 5,192

Other comprehensive income (loss) (104) 127 (431) 915

Comprehensive income: 4,626 6,152 5,493 6,107

Other undisclosed comprehensive income, net of tax, attributable

to parent

Comprehensive income, net of tax, attributable to parent: 4,626 6,152 5,493 6,107

McDonald’s market price summary

Earnings per share :

August 04, 2021 - McDonald’s Corp (US:MCD) has filed a financial statement reporting EPS - Earnings
Per Share Basic of $3 USD. Previously, on May 05, 2021, McDonald’s Corp reported EPS - Earnings Per
Share Basic of $2 USD. This represents a change of 44.17% in EPS - Earnings Per Share Basic.

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Common stock value :

August 04, 2021 - McDonald’s Corp (US:MCD) has filed a financial statement reporting Common Stock
Value of $16,600,000 USD. Previously, on May 05, 2021, McDonald’s Corp reported Common Stock
Value of $16,600,000 USD. This represents a change of 0.00% in Common Stock Value.
THREATS : McDonald's franchise remains at the forefront of child-directed marketing, a source of
concern for both consumer groups and parents who believe that McDonald's purposely markets unhealthy
food to children. They entice children as young as one year old into their restaurants with special meals,
toys, playgrounds and popular movie character tie-ins. Children grow up eating and enjoying McDonalds
and then continue into adulthood. Health conscious consumers demanding better quality and healthier
menu items. All fast-food chains expected to struggle to meet new consumer health expectations. This
shows an overall weaker industry. They have been sued multiple times for having "unhealthy" food,
allegedly with addictive additives, contributing to the obesity epidemic in America. (Novak, J. 2009) Any
new legislation or law which may ban any restaurant from serving unhealthy food could be a potential
threat to McDonald’s. Increased competition among rival sellers, including price wars, product
innovation, and growth. Down turn in economy is affecting the ability to eat out as much. Especially in
countries where there is a poor economy.
ANALYSIS : According to the net income, McDonald’s is making money out of its operations for sure.
Thus, are the returns sufficient enough to ensure growth and sustainability? After investigating the
reasons behind the equity decline, the company is buying back its shares in the stock market due to the
low price, this can be beneficial for the shareholders only in case the share price of McDonald’s increases
in the future, but at the same time, it is a good indicator of the difficulties the business is facing. The
legendary business which in the past stood still in the face of all the winds and used to prosper, while its
competitors are suffering, is now facing the same situation. Will enhancing its sustainable initiatives
makes it up for the unhealthy products it is offering. According to yahoo finance, the controversy level of
McDonald’s is 3 and is considered medium, accounting 4.4 to environmental Risk, 14.8 to social risk,
and 6.2 to governance risk. compared to 2.1 average of its competitors [ CITATION Env20 \l 1033 ].
According to Gray, sustainable practices are cross beneficial for both clients and business, clients get
sustainable practices while business wins approval and loyalty (Al Nuaimi and Nobanee, 2019).

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 Comparative analysis of McDonald’s and Burger King

Debt Ratio McDonald's Vs Burger King

A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea
to the leverage of the company along with the potential risks the company faces in terms of its debtload.”
(Investopedia, 2012)

(Data Extracted from McDonald’s Corporation Annual Report 07, 08, 09, 10 & 11. Burger King Annual
Report 07, 08, 09, 10 & 11. For Ratio Calculation and Formulas Please see Appendix-2) If we look at
the ratios of McDonald and Burger King we can say that both have identical average debt ratio of 0.34
and is enjoying the same leverage level and borrowing capacity. However if we look at the trend of both
entity we see that during the last 5 years McDonald’s debt ratio has remained in almost the same rang
during the last 5 years that shows a balanced capital structure of McDonald whereas Burger King is
opposite to that of McDonald having great volatility in terms of debt. Inventory Turnover
“In accounting, the Inventory turnover is a measure of the number of times inventory is sold or used in a
time period such as a year.”

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The above graph in isolation shows that Burger King is more efficient in terms of inventory
management compared to McDonald’s. However if we correlate this ratio with growth trend it is
evident that growth trend of Burger King is decreasing YOY basis which is a clear sign of
inadequate inventory level. As we can see from the financial statements of Burger King for the last 5
years inventory has been decreasing from $15m in
2007, $16m in 2008, $15.80m in 2009, $15.60m in 2010 and $ 13.70m in 2011

McDonald’s Burger King

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 CONCLUSION

Based on the respective performance of the two companies it can be concluded that McDonald’s is
performing much better than Burger King in Fast Food Retail Industry and that is why it has been
ranked number one fast food chain in the world. It has shown strong sales growth impressive
profitability trend and a strong balance sheet. The market value of the shares and other equity ratios
are also very good for McDonald’s, overall it is a very professional company having a solid
performance during the last 5 years. Revenue growth in various parts of the world and its revitalization
initiative the “Plan to Win” is yielding great results.

Burger King has shown mixed results in some years it has shown significant improved performance on
the other hand it has shown decline in some important ratios during some years. In year 2010 it ha
been taken over by 3G Capital so the year 2010 is not right benchmark to compare with previous years
and when it compares to McDonald’s then McDonald’s appears to be much stronger company in terms
of financial ratios and overall business performance.

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