McDonalds

McDonald’s Presentation Yan Huang Sourabh Verma Yee Man Suen Stacey Carter Agenda      Company Profile: Yan Financial Statements: Sourabh Ratios and Other Analysis: Yee Man Key Developments: Stacey Earnings Prediction: Stacey McDonalds  120 Countries and Territories Serve Nearly 54 million Customers a day   Predominantly Products   Hamburgers, Sandwiches, French Fries, etc Other Localized fare (salads, Wraps, vegetarian Other Restaurant Brands   Piles Café & Boston Market Chipotle Mexican Grill (until 10/2006)   Donatos Pizza Redbox  DVD Rental Machines Company or Franchisees  Franchise arrangements, Foreign affiliated markets and developmental licensees Largest of these affiliates is Japan (3755 restaurants) Not in the Practice of Franchising to passive investors.   McDonald’s Around the World  McDonald's has become emblematic of globalization, sometimes referred as the "McDonaldization" of society .  Global Location Global Locations “First” McDonalds  Now a Museum In Des Plaines, IL; A replica of the original The Original McDonalds, But the Ninth Marked the beginning of future CEO Kroc‟s involvement with the firm   50th Anniversary  Rock „N‟ Roll in Chicago, IL Celebrated its 50th anniversary  Stores Around the World Meknes, Morocco   South Korea Stores Around the World “Forever Young” Look In Pennsylvania  Portsmouth, England Being refurbished rather Than rebuilt.  Stores Around the World  With a Playplace in Moncton, Canada  Riga, Latvia Segment and Geographic Breakdown Segment and Geographic Breakdown Segment and Geographic Breakdown Debt Ratings  McDonald has debt in the form of long term and notes payable.  Fitch, S&P and Moody‟s rate the commercial paper as F1, A1 and P-2 respectively.  Similarly, long term debt is rated as A,A and A3 respectively.  Companies key metrics for the credit structure is show on the table next. Debt McDonalds Growth       Company has paid dividends on its common stock for 33 years And has increased the amount every year. In 2008, company paid the dividend of $1.625 annually on the quarterly basis. In 2007, company increased the annual dividend 50% to $1.5 per share. At $1.5 per share, companies dividend is six times more than $0.235 per share paid in 2002. Reflects the companies confidence in the ongoing strength and reliability of its cash flow. Cash flow from Operations     Cash flow from operations totaled $5.9 billion and exceeded capital expenditure by $3.8 billion in 2008. Similarly for 2007,CFO totaled $4.9 billion and exceeded capital expenditure by $2.9 billion. CFO increased from 2007 to 2008 by $1.0 billion primarily due to increased operating results and lower income tax payments. Whereas CFO from 2006 to 2007 was increased by $535 million because of the operating results and lower income tax. Cash flow from Investment CFI totaled $1.6 billion in 2008, an increase of $475 million compared with 2007.  Capital expenditure increased by $189 million in 2008, primarily driven by increase in Europe and APMEA.  Higher Capital expenditure in 2007 offset the LATAM transaction and sale of Boston market decreasing the CFI by $125 million to $1.2 billion in 2007.  Cash Flow from Financing     CFF totaled 4.1 billion in 2008, an increase of $118 million compared with 2007. Financing activities reflected lower proceeds from stock option exercises, mostly offset by higher debt issuance. Higher net debt issuance decreased the CFF by $1.5 billion to $4.0 billion, which is partly offset by higher treasury stock purchase and increase in common stock dividends. As a result from all these activities companies cash and equivalent increased by $82 million in 2008 to $2.1 billion. Liquidity Ratios      Current Ratio = 1.39 times Quick Ratio = 1.18 times Cash Ratio = 0.81 times Receivable Turnover = 36.32 times Average Days Sales Outstanding = 15.4 Days Liquidity Ratios  Inventory Turnover = 36.32 times Average Days Turnover = 9.97 Days Payables Turnover = 6.89 times Average Days Payables Outstanding = 52.98 Days    Profitability Ratios      Profit Margin = 18.34% Assets Turnover = 0.81 times Fixed Assets Turnover = 1.16 times ROA=23% ROE=30% Long-Term Solvency & Cash Flow Ratio  Debt to Equity = 0.76 Times Interest Earned = 12.78 times Cash Flow from Operation Ratio = 2.33 times   Sales by Regions US 18% 6% 34% Europe APMEX 42% Other Countries Franchised vs Company Operated 17.60% Company operated margins Franshise Margins 82.40% Systemwide sales Increases External Comparison $25,000 $20,000 Revenue $15,000 $11,279 $23,522 $10,000 $5,000 $6,443 $4,313 $1,506 $2,455 $964 $354 $190 Income from operation Net Income $0 McDonald's Yum! Burger King External Comparison 200% 150% 100% 50% 0% Profit Margin ROA ROE 30% 18% 23% 9% 14% 8% 7% 24% 187% McDonald's Yum! Burger King External Comparison 10 0 -10 -20 -30 -40 -50 -60 -61.44 1.13 1.39 2.33 0.55 0.88 2.18 0.89 0.53 McDonald's Yum! Burger King Debt to Equity Ratio Current Ratio Cash Flow From Operation -70 Two Sides to McDonald’s Story Criticism  Response  “Super-size Me” effect Accused of promoting unhealthy food Exploits workers by not paying overtime rates Damages the environment  Removed super-sized fries and drink from menu  “Adult” happy meals and healthy food alternatives Requires restaurant managers to enroll in 401(k) Conserves natural resources and minimizes pollution     McDonald’s and the Economy  Growing sales while industry as a whole struggles Raised prices during recession Added new products   Menu Mistakes        Hulaburger McPizza Arch Deluxe Salad shakers Dinner menu Roast beef sandwiches McLean Deluxe Earnings Prediction  Buy stock in McDonald‟s Earnings estimated to be 0.82 and 0.95 per share for first two quarters of 2009 Able to sustain despite tough economic conditions  Stock Snapshot April 15th open $54.05    April 15th close $53.95 Shares Outstanding: $1.1 billion  