International Finance

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Table of Contents
INTRODUCTION/ COMPANY PROFILE..........................................................................................3
SECTION A: DEVELOPMENT IN THE INTERNATIONAL ENVIRONMENT THAT AFFECTED
MCDONALD’s.....................................................................................................................................4
DEVELOPMENT 1...........................................................................................................................4
DEVELOPMENT 2...........................................................................................................................5
SECTION B: DIVIDEND POLICY AND SOURCES OF FINANCE..................................................6
DIVIDEND POLICY........................................................................................................................6
SOURCES OF FINANCE.................................................................................................................7
DEBT............................................................................................................................................7
EQUITY........................................................................................................................................7
GEARING RATIO........................................................................................................................8
SECTION C: FINANCIAL RATIO ANALYSIS..................................................................................9
PROFITABILITY RATIOS..............................................................................................................9
LIQUIDITY RATIOS.....................................................................................................................10
GEARING RATIO..........................................................................................................................10
REFERENCES....................................................................................................................................11
APPENDIX.........................................................................................................................................13

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 INTRODUCTION/ COMPANY PROFILE
McDonald's is an American fast-food chain that began in San Bernardino, California, in 1940
as a restaurant run by Richard and Maurice McDonald. McDonald's is the world's most
profitable restaurant company, with over 69 million customers served daily in over 100
countries and 37,855 locations as of 2018. McDonald's is most known for their hamburgers,
cheeseburgers, and fries, but they also provide chicken, breakfasts, soft drinks, milkshakes,
wraps, and desserts. With 1.7 million employees, McDonald's is the world's second-largest
private employer (behind Walmart with 2.3 million employees). McDonald's is the 9th
highest worldwide brand worth as of 2020 (Opait, G., 2019).

Its IOM division comprises services in Australia, Canada, France, Germany, Italy, the
Netherlands, Russia, Spain, and the United Kingdom, among other countries. Its operations in
markets such as Latin America and Asia are included in the IDL section. Drive-thru, takeout,
delivery, curbside pick-up, and dine-in are among the digital options available (Opait, G.,
2019).

In 2020, McDonald's had a net profit of around 4.73 billion dollars. The net profit fell short
of the 6.03 billion U.S. dollars reported the prior year. McDonald's had a revenue of 19.21
billion dollars that year (Akcam, B.K., 2020).

The company is a listed company with its stock on NYSE: MCD, and is a component of
DJIA, S&P 100 and S&P 500.

In this study, the financial performance of McDonald's is analysed. In addition, issues

affecting McDonald's financial performance are reviewed, such as how the firm manages
risks connected to its funding sources and dividend policy.

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 SECTION A: DEVELOPMENT IN THE INTERNATIONAL
ENVIRONMENT THAT AFFECTED MCDONALD’s
DEVELOPMENT 1
COVID19 – The COVID-19 pandemic, also known as the coronavirus pandemic, is a
worldwide disease that started in 2019 (COVID-19) and is caused by coronavirus 2 that
causes severe acute respiratory syndrome (SARS-CoV-2) (Akcam, B.K., 2020).

Due to the pandemic, every industry is suffering. Restaurants are also battling to keep up with
the shifting dynamics and customer habits around the health crisis, requiring them to
streamline menus and rely heavily on the internet and digital orders for pickup, delivery, and
drive-thru service (Rajawat, et al., 2020).

McDonald's Corp reported a larger-than-expected loss in worldwide same-store sales after the
burger chain's locations throughout the world were closed due to the COVID-19 outbreak,
leaving just drive-thru and delivery operations open (Rajawat, et al., 2020).

For the second quarter ended June 30, global same-store sales plummeted 23.9 percent,
pulled down by major overseas markets such as the United Kingdom, France, and Latin
America. Same-restaurant sales declined 8.7% in the United States, but were better than the
expected 9.97% drop, as most stores were able to stay in business with drive-thru and
takeaway alternatives (Kee, et al., 2021).

As the lockdowns relaxed, sales increased and losses decreased, indicating some hope for a
gradual recovery. Approximately 96 percent of the business's locations had a drive-thru,
delivery, or restricted sitting capacity, according to the company. The company's revenue fell
30.5 percent to $3.76 billion, although it was above analysts' expectations of $3.2 billion
(Kee, et al., 2021).

From $1.52 billion, or $1.97 per share, a year ago, net income dropped to $483.8 million, or
65 cents a share.

McDonald's, like many other businesses, is rethinking its post-epidemic labour strategy as a
result of the pandemic. The company's adaptability before COVID-19 struck provided a great
platform for adjusting working circumstances and providing the best assistance to employees.

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DEVELOPMENT 2
EMERGENCE OF CLEAN TECHNOLOGY - Clean technology refers to actions to
reduce or eliminate any nuisance, pollution, or waste at the point of production, as well as to
assist focus on saving raw materials, natural resources, and energy, resulting in increased
performance, productivity, or efficiency while minimising negative environmental effects
(Han, M., 2021).

The trend has an impact on McDonald's as it serves customers worldwide and customers are
concerned about the environment as a result of which McDonald's has also started investing
in these technologies.

McDonald's has increased its attention on community and environmental resilience as a result
of the COVID 19 pandemic. McDonald's is continuously making investments in renewable
energy generation as part of its commitment to take climate action. McDonald's completed 3
new virtual power purchase agreements (VPPAs), which are investments that contribute to
building renewable energy projects, such as wind and solar farms, eventually adding
renewable energy to the world's power grid, building on previous progress in sourcing
renewable energy in several European markets (Han, M., 2021).

The business will provide 1,130 megawatts to the five renewable energy projects. It would
also avoid about 2.5 million metric tonnes of greenhouse gas emissions every year, which is
the equivalent of planting 40 million trees or eliminating 500,000 automobiles from the road
for a year. According to McDonald's, there would be enough solar panels to cover Central
Park seven times over, or 4,400 football fields (Yazdanpanah, J., 2020).

The agreements help the company achieve its aim of decreasing greenhouse gas emissions by
36% by 2030. The initiatives will create 3,400 short-term employment, 135 long-term jobs,
and $360 million in tax income in the local area.

The McDonald's System's collective prosperity and resilience, as well as its capacity to feed
people today and in the future, were boosted by cutting emissions and reacting to climate
change. While combating climate change is difficult and costly, it will generate long-term
commercial value by ensuring that we are minimising operating costs in energy supply,
enhancing the security of our raw material supply, and lowering our vulnerability to rising
environmental hazards, regulations, and taxes (Yazdanpanah, J., 2020).

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SECTION B: DIVIDEND POLICY AND SOURCES OF FINANCE
DIVIDEND POLICY
A company's dividend policy is its choice on how to distribute dividends to its shareholders.
A dividend policy is a financial decision that comprises determining the dividend payout
ratio, dividend periodicity, and whether or not dividends should be paid at all (Yong, and
McDonald, 2018).

The Company's ordinary shares are traded on the New York Stock Exchange in the United
States under the symbol MCD.

As of January 31, 2021, the number of eligible and record stockholders of the Company's
common stock was expected to be 2,900,000.

Management thinks it is appropriate to spend in the company to promote profitable growth

and use surplus cash flow to distribute cash to shareholders through dividends and share
repurchases, given the Company's returns on capital investments and considerable cash
supplied by operations. Until 2020, the Company has paid dividends on ordinary shares for
45 years in a row, increasing the dividend amount at least yearly. Future dividend amounts
will be considered after analysing profitability projections and financing needs, and will be
announced at the authority of the Company's Board of Directors, just as they have been in the
past ((Yong, and McDonald, 2018).

The $5.04 per share full-year dividend for 2020 represents a quarterly dividend of $1.25 per
share paid in each of the first three quarters, with an increase to $1.29 per share paid in the
fourth quarter. The Company's confidence in the continuous strength and predictability of its
cash flow is reflected in this 3% increase in the quarterly dividend, which corresponds to a
$5.16 per share annual pay-out (Brahmana, and Kontesa, 2021).

Prior to the pandemic, the company has consistently paid a dividend to its shareholders. The
payment of dividends to shareholders consistently and gradually increased. Even in the
challenging situations of the Covid-19 pandemic the company hand optimistically paid
dividends and increased its dividend pay-out ((Brahmana, and Kontesa, 2021).

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In this case, the dividend relevance theory is valid. Because capital gains are unpredictable,
according to the relevance theory of dividends, investors prefer dividends over capital gains.
McDonald' stockholders, presumably, have a strong appetite for dividends.

SOURCES OF FINANCE
McDonald's Utilizes funds from three sources which includes an internal source of financing,
an external source of financing and long term sources of financing. The internal source of
financing includes the revenue from operation minus all expenditures incurred and this
amount is retained by the business and used as a source of finance to expand its business
through the establishment of new restaurants and purchasing assets. As 75% of McDonald's
business run on a franchise basis another source of financing is the royalty from franchises
(Babbitt, C.W., 2017).

McDonald gets money via a bank loan. McDonald Inc. uses this type of financing to cover its
early expenditures. The loans are available in two types: long-term and short-term. The total
current liabilities of McDonald is $ 3,621.0 in the year 2019 and is $ 6,181.2 in 2020. The
total long term liabilities of $ 34,118.1 were in 2019 and is $35,196.8 in 2020 (Babbitt, C.W.,
2017).

The company also raises funds by issuing shares in the market. The total shareholder's equity
of the company is $ (8,210.3) in 2019 and is $ (7,824.9) in 2020.

DEBT
Debt refers to a component of the capital structure that is provided by companies that do not
possess a share in the business. The following is a summary of the long-term debt/borrowing.
It consists of long term debt of $34,118.1 in 2019 and $35,196.8 in 2020, Long-term lease
liability of $13,321.3 in 2019 and $12,757.8 in 2020, and Long-term income taxes of
$2,265.9 in 2019 and is $1,970.7 in 2020 and other long-term liabilities of $660.6 in 2019
and is $702.0 in 2020 (Adimasu, N.A., 2019).

EQUITY
The part of a company's capital structure that is derived through the issuing of shares or
profits claimed by stockholders is called equity. The following is a summary of equity shares.
The $(8,210.3) in 2019 and is $ (7,824.9) in 2020. The Company's Board of Directors
authorised the acquisition of up to $15 billion of outstanding shares in December 2019, with
no set expiration date. Under the programme, about 4.3 million shares were repurchased for

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$874.1 million in 2020. The Company unilaterally halted open market share repurchases in
early March 2020 (Adimasu, N.A., 2019).

GEARING RATIO
Particulars 2018 2019 2020
Debt $33,560 $ 34,118.1 $ 35,196.8
Equity $ (4,719) $ (8,210.3) $ (7,824.9)
Debt to Equity 7.11 4.15 4.49

The debt to equity ratio of the company is very low and is 7.11 in 2018, 4.15 times in 2019
and is 4.49 times in 2020. The ratio indicates that the company depends more on debt than
equity as a source of finance in its capital structure. Over the last three years, the debt level
has continuously increased (Pinto, and Rastogi, 2019).

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 SECTION C: FINANCIAL RATIO ANALYSIS
PROFITABILITY RATIOS
The profitability ratios reflect a company’s profitability position, which demonstrates its
ability to make money through sales and investments (Gim, and Jang, 2019).

1. GROSS PROFIT RATIO - The gross profit margin is the percentage of income that
may be used to pay operational and other costs (Gim, and Jang, 2019).
ANALYSIS - The gross profit margin ratio of McDonald's Corp. declined
dramatically from 2019 to 2020, and the reason for this is a drop in sales due to the
pandemic. In reality, despite the drop in revenue, costs in 2020 were greater.
2. NET PROFIT RATIO - The net profit ratio is a measure of profitability that is
computed by dividing net income by revenue (Schramade, W., 2019).
ANALYSIS – The net profit margin ratio of McDonald's Corp. declined dramatically
from 2019 to 2020. The reason for the decline in the ratio is an increase in cost and a
decline in the net income of the company. The decline in the net profit of the
company indicates that the company is not using efficient pricing strategies.
3. OPERATING PROFIT RATIO – A profitability ratio computed as operating income
divided by sales is known as an operating profit ratio (Schramade, W., 2019).
ANALYSIS – The operating profit ratio of the company has declined from 2019 to
2019 by 5%. A drop in sales is an apparent explanation for a drop in operational
profit.
4. RETURN ON EQUITY – The return on equity (ROE) is a financial
performance indicator of a corporation is computed by dividing net income by
shareholders' equity (Wu, F., 2020).
ANALYSIS – The return on equity of the company has a negative value in both the
years and the reason is a deficit in shareholders' equity. Declining return on equity
suggests that the company is becoming less efficient at creating profit and increasing
shareholders value.
5. RETURN ON ASSETS – Return on assets (ROA) is calculated by dividing net
income by total assets and is a measure of how successfully a firm uses its assets in
terms of profitability (Wu, F., 2020).
ANALYSIS – The return on assets of the company has declined from 12.68% in 2019
to 8.99% in 2020. The reason behind the decline in ratio is a decrease in the

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 profitability of the company in the year 2020 and also the company has invested in
assets that have failed to produce revenue growth.

LIQUIDITY RATIOS
A liquidity ratio is a financial measure that is used to assess a company's capacity to meet its
short-term loan commitments. The measure is used to assess if a company's current assets, or
liquid assets, can cover its current obligations (Chai, W.J., 2019).

1. CURRENT RATIO – The current ratio may be computed by comparing current assets
and current liabilities. A current ratio of 2 or above suggests that the firm is highly
liquid since it will have sufficient current assets to pay down its short-term debt (Chai,
W.J., 2019).
ANALYSIS – McDonald’s Corporation current ratio has improved from 2019 to
2020. However, the change is not significant. The main reason is Increase in cash and
cash equivalents from $898 in 2019 to $3,449.1 in 2020.
2. QUICK RATIO – Although the quick ratio is nearly equal to the current ratio, it is
considered a slow-moving object. As a result, it isn't included in the inventory. The
quick ratio aids in determining the company's real-time solvency. If the corporation
has a quick ratio of 1 or above, it will be in a better position (Mozammel, S., 2019).
ANALYSIS – McDonald's corporation's quick ratio has slightly improved from 2019
to 2020. The reason is an increase in inventory from $50.1 in 2019 to $51.2 in 2020.

GEARING RATIO
The capital structure of a corporation is reflected in the gearing ratios. When opposed to a
corporation with a low gearing position, a company with a high gearing position indicates a
high-risk exposer (Mozammel, S., 2019).

1. DEBT TO EQUITY – The debt-to-equity ratio is computed by comparing how much

debt is used vs. how much equity is used (Doan, et al., 2020).

ANALYSIS – The debt to equity ratio of the company is very low and is 4.15 times in
2019 and is 4.49 times in 2020. The reason for the same is that the company is having
a deficit in shareholders in equity in both years.it is a red flag for investors.

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REFERENCES

 Adimasu, N.A., 2019. Dividend policy and firm’s profitability: Evidence from
Ethiopian private insurance companies. Journal of Finance and Accounting, 7(4),
pp.116-121.
 Akcam, B.K., 2020. Improving order processes with information technology:
McDonald’s case. Journal of Information Technology Teaching Cases, 10(2), pp.102-
107.
 Babbitt, C.W., 2017. A “systems” perspective on clean technology.
 Brahmana, R.K. and Kontesa, M., 2021. Does clean technology weaken the
environmental impact on the financial performance? Insight from global oil and gas
companies. Business Strategy and the Environment.
 Chai, W.J., 2019. The Effects Of Liquidity Risk And Market Risk On Mcdonald’S
Corporation Performance From 2014 To 2018.
 Doan, N.T., Hoang, D.P. and Pham, A.H.T., 2020. Media reputation: a source of
banks' financial performance. International Journal of Bank Marketing.
 Gim, J. and Jang, S.S., 2019. Heterogeneous dividend behaviors: The role of
restaurant franchising. International Journal of Hospitality Management, 80, pp.183-
191.
 Han, M., 2021. The Impact of Competitive Strategy on Profitability in the Context of
COVID-19: A Case Study of McDonald’s. In E3S Web of Conferences (Vol. 235).
EDP Sciences.
 Kee, D.M.H., Toh, A.L., Chong, J.H., Teng, Y.M., Ooi, S.J.C. and Chong, R.X.J.,
2021. The Impact of Covid-19 on McDonald’s Business: A Case Study of
Malaysia. International Journal of Accounting & Finance in Asia Pasific
(IJAFAP), 4(2), pp.46-57.
 Mozammel, S., 2019. AN ANALYSIS OF MCDONALD’S CORPORATION FROM
MODERNIST AND POSTMODERNIST PERSPECTIVES. Humanities & Social
Sciences Reviews, 7(2), pp.572-580.
 Opait, G., 2019. The McDonald’s Corporation, a “Star” in the “Galaxy of the
Businesses”. Annals of “Dunarea de Jos” University of Galati Fascicle I. Economics
and Applied Informatics Years XXV, (3), pp.1-13.

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 Pinto, G. and Rastogi, S., 2019. Sectoral analysis of factors influencing dividend
policy: Case of an emerging financial market. Journal of risk and financial
management, 12(3), p.110.
 Rajawat, A., Kee, D.M.H., Malik, M.Z.B.A., Yassin, M.A.Q.B.M., Shaffie,
M.S.I.B.A., Fuaat, M.H.B., AlDosari, N. and Santoso, M.E.J., 2020. Factors:
responsible for McDonald's performance. Journal of the Community Development in
Asia (JCDA), 3(2), pp.11-17.
 Schramade, W., 2019. McDonald's: a sustainable finance case study. Erasmus
Platform for Sustainable Value Creation.
 Wu, F., 2020. An Analysis of McDonald’s Business Model Based on Business
Ecosystem Theory. In RSU International Research Conference (No. 1, pp. 1756-
1763).
 Yazdanpanah, J., 2020. Change management in McDonald's.
 Yong, S.K. and McDonald, S., 2018. Emissions tax and second-mover advantage in
clean technology R&D. Environmental Economics and Policy Studies, 20(1), pp.89-
108.

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 APPENDIX
PARTICULARS 2019 2020
PROFITABILITY RATIOS
GROSS PROFIT Gross profit Gross Profit $ 11,115.3 $ 9,752.1
MARGIN Sales Sales $ 21,364.4 $ 19,207.8
Gross Profit Ratio 52.74% 50.77%
NET PROFIT Net profit Net Profit $ 6,025.4 $ 4,730.5
MRGIN Sales Sales $ 21,364.4 $ 19,207.8
Net Profit Ratio 28.59% 24.63%
OPERATING Operating profit Operating profit $ 9,069.8 $ 7,324.0

PROFIT MARGIN Sales Sales $ 21,364.4 $ 19,207.8

Operating profit Ratio 43.03% 38.13%
RETURN ON Net income Net Income $ 6,025.4 $ 4,730.5
EQUITY Shareholder’s Shareholder’s Equity $ (8,210.3) $ (7,824.9)
equity Return on Equity (74.2%) (60.45%)
RETURN ON Net income Net Income $ 6,025.4 $ 4,730.5

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 ASSETS Total assets Total Assets $ 47,510.8 $ 52,626.8
Return on Assets 12.68% 8.99%
LIQUIDITY RATIO
CURRENT RATIO Current assets Current Assets $ 3,557.9 $ 6,243.2
Current Current Liabilities $ 3,621.0 $ 6,181.2
Liabilities Current Ratio 0.98 1.01
QUICK RATIO Quick Assets Current Assets $ 3,557.9 $ 6,243.2
Current Less: Inventory $ 50.2 $ 51.1
Liabilities Current Liabilities $ 3,621.0 $ 6,181.2
Quick Ratio 0.96 1.00
GEARING RATIO
DEBT TO Debt Debt $ 34,118.1 $ 35,196.8
EQUITY Equity Equity $ (8,210.3) $ (7,824.9)
Debt to Equity 4.15 4.49

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