Financial Analysis of

McDonald’s

1 Name-Shurid Zaman
ID- 1810768
2 Abstract

 The objective of this paper is to evaluate the financial performance

of McDonald’s corporation.
 The data has been gathered from the income statement and the
balance sheet of the company available in Yahoo finance.
 The figures in the income statement indicate that the company is
making profits.
 McDonald’s corporation is facing financial issues.
3
Introduction

 McDonald’s Corporation is founded in 1940 by two brothers.

 It is now globally operating in many locations.
 The company revenues are made by the franchisees.
 Recognized as a premier franchising around the world.
 Strong components employed in its marketing strategy.
 Removing plastic toys from the happy meal.
4 Introduction (Continuing)

 Attract new potential green shareholders.

 Continuous assessment of its financial performance.
 Ratios are used to find out strengths and weaknesses.
 Financial ratios are created with the use of numerical values.
 To be useful and meaningful they need to be calculated reliably and
consistently.
 Ratios can be divided into four categories.
5 Results & Discussion

 Since 2016 the total liabilities exceed the total assets.

 Fluctuation in current assets with a slight increase in the year 2019.
 The amount of cash of the company has dropped from $2.46b where
it was the highest in the year 2017.
 Receivables have an increasing trend until the year 2019.
 In 2019 sales slightly increased compared to the previous year and
21,076,500 were recorded.
 Net income indicates that the company is generating profits from its
sales.
6 Liquidity Ratios
Ratio/Year 2019 2018 2017 2016

Current Ratio 0.98 1.36 1.84 1.40

Quick Ratio 0.97 1.35 1.82 1.38

Cash Ratio 0.25 0.29 0.85 0.35

 The liquidity ratio is a tool to assess the ability of a company.

 Its ratios are decreasing over the years.
 According to 2019 records, the current liabilities exceed
slightly the current assets.
 The fast-food industry inventory turnover is fast.
7 Activity Ratios
Inventory Turnover
Ratio/Year 2019 2018 2017 2016
300.00
Inventory
250.00
198.43 200.38 207.48 244.77
Turnover
200.00

Receivable 150.00
9.48 8.61 11.55 16.70
Turnover 100.00

Total Asset 50.00

0.44 0.64 0.68 0.79
Turnover 0.00
2019 2018 2017 2016

Receivable Turnover Total Asset Turnover

18.00 0.90
16.00 0.80
14.00 0.70
12.00 0.60
10.00 0.50
8.00 0.40
0.30
6.00
0.20
4.00
0.10
2.00
0.00
0.00 2019 2018 2017 2016
2019 2018 2017 2016
8 Activity Ratios (Continuing)

 Activity ratio assesses the financial performance.

 It measure how efficiently a firm operates along with a variety of
dimensions.
 Activity ratios are decreasing over the years under study except for
the receivable turnover.
 McDonalds sold its inventory every 32 hours compared to Wendy’s
that sold it every 27 hours.
 Receivables turn over McDonald’s is doing less than Wendy’s.
 McDonald’s is generating less money from the number of assets it
owns.
 Debt & Times Interest Earned Ratios
9

Debt Ratio Times Interest Earned Ratio

1.25 9.50

1.20 9.00

1.15 8.50

1.10 8.00

1.05 7.50

1.00
2019 2018 2017 2016 7.00
2019 2018 2017 2016

 The lowest debt ratio was recorded in the year 2017 at 1.10% and the
highest was in 2018 at 1.19%
 In the year 2019 the percentage of assets being funded by debts.
 The time's interest earned ratio refers to the solvency of a business.
 It is greater than 1 since the year 2016 onward it is not stable, the
lowest times recorded in the year 2019 at a rate of 7.99.
 Profitability Ratios
10
Return on Equity
Ratio/Year 2019 2018 2017 2016 0.00
2019 2018 2017 2016
Return on
-0.50
-0.73 -0.95 -1.59 -2.13
Equity
-1.00
Return on
0.13 0.18 0.15 0.15 -1.50
Assets

Profit Margin 0.29 0.28 0.23 0.19 -2.00

-2.50

Return on Assets
Profit Margin
0.20
0.18 0.35

0.16 0.30
0.14 0.25
0.12
0.20
0.10
0.08 0.15

0.06 0.10
0.04 0.05
0.02
0.00
0.00 2019 2018 2017 2016
2019 2018 2017 2016
11 Profitability Ratios (Continuing)

 29% of sales revenue ends up as profit .

 Low-profit margins can be explained by the selling price of
McDonald’s.
 Return on assets ratios refers to the returns generated by the assets.
 The year 2019 recorded the smallest return on assets since 2016.
 The negative returns on equity are explained by two drivers.
 McDonald’s is buying back its shares in the stock market.
12 Conclusion

 McDonald’s is making money out of its operations.

 It is a good indicator of the difficulties the business is facing.
 The controversy level of McDonald’s is 3 and is considered
medium.
 Sustainable practices are cross beneficial for both clients and
business.
 Clients get sustainable practices while business wins approval and
loyalty.
13

Will the management be able to come up with a

strategy prone to bring back the days of glory of
McDonald's?