Financial Analysis of McDonald's

A detailed financial analysis was performed on McDonald's Corporation. The analysis found that McDonald's Corporation remains the premier player in the fast food industry on a global basis. The company, however, is showing signs of slowing growth, which could mean that either the company or the industry is entering the mature stage of the life-cycle. It might also be true that both the company and the industry are entering the mature stage of the life-cycle. There are actions that company management can take to improve return on equity (such as reducing the level of the company's fixed assets); however, a maturation process in either the industry or the company environment may indicate that McDonald's will become a better income investment than its is a growth investment.

McDonald's is the world's largest fast-food chain in terms of both revenues and restaurants. The company operates in 121 countries. Most of the company's restaurants are free-standing facilities; however, the company also operates mini-restaurants in Wal-Mart, Chevron gasoline stations/stores, and at other sites. The company also owns and operates Donatos Pizza chain and the Boston Market chain.

Analysis of Financial Trends, Future Expectations, and Ratio Analysis

The trend in revenues was steadily upward over the entire five-year period (1997-2001) of analysis. Gross profit also trended upward over the entire period of analysis. EBITDA

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rmance through ownership. Thus, management at McDonald's may not find the variations between the company and the industry in these two turnover measures troubling. With respect to inventory turnover, the company's performance deteriorated over the entire five-year period of analysis. While this trend deserved the attention of management, it is not an issue of vital concern, because in 2001, the company's inventory turnover (140.95) remained 3.8 times higher than the fast food industry average (37.3). Debt Ratios The total debt ratio at McDonald's Corporation trended upward throughout the five-year analysis period (1997-2001). The greatest increases occurred in the middle years of the analysis � 1998 to 1999 and 1999 to 2000. The increases from 1997 to 1998 and from 2000 to 2001 were much more moderate. Over the entire five-year period of analysis, the total debt ratio increased from 51.5 percent in 1997 to 57.9 percent in 2001. The increase of 6.4 percentage points reflects a 12.4 percent increase in debt as a proportion of total assets. While the increase in debt over the five-year period was substantial, the level of the company's total debt ratio in 2001 remained well below the average total debt ratio of 64.2 percent

Category: Economics - F