McDonald's Restaurant - Essay Example

The McDonalds Corporation McDonalds is the largest restaurant Company in the world with 30,000 restaurants of which 8000 are Company owned, 18,000owned by franchisees and 4000 owned by affiliated companies. Worldwide sales was $19.1 billion US dollars in 2004, which is remarkable in the intensely competitive restaurant sector. (www.galenet.galegroup.com) . Annual sales for the fiscal year ended 31 December 2004 was $32.00M in sales. Sales dipped in 1999 due to saturation in the flagship market of the United States and in 2001 after the 9/11 incidents, but in 2003, the Company planned a revitalization drive in accordance with which new foods have been introduced, including breakfast and salad products, which has, in turn, resulted in increased sales of 10% in the U.

S and 8% in global sales in the first three quarters of 2004 (Barr, 2004). Gross profits for 2004 were $19,065 billion dollars, net income was $2,2,79 billion dollars. The return on assets was $14,201 with total outstanding shares of 1,270, hence the rate of return was fairly good with dividends per share being $0.55 and earnings per share being $1.79 (diluted) and stock valued at $32.06 at the year-end.(Financial Report 2004) Domestic growth has been pegged at about 5% while international operations show substantial growth at 10 to 15% each year and returns on assets have also held steady.

Shareholders’ return on capital has been a consistent 18 to 19% from 1994 to 1999.. (www.news.morningstar.com). The Return on Investment has been at a comfortable level of 20% as compared to the average of 8% for most companies and it has a payout ratio of 15% leaving plenty of funds for investment purposes. The company’s financial leverage in terms of debt to equity was 2.2% in 1999 and PEG ratios (Price to Earnings Growth) was 2.6. McDonalds stock prices rose by 29 percent in 2004 and are up by $1.

17 in 2005, with current stock prices at $33.23 per share.(www.biz.yahoo.com). The debt to equity leverage ratio for 2004 was 9:14, which provides the Company with good leverage. The Company also demonstrates excellent liquidity, with current ratios in the range of 3:1, providing enough surplus for investment purposes. (Financial report 2004) The Company Governance is through a Board of Directors who are responsible to the Company shareholders. (www.mcdonalds.com). Owners/franchisees are large stakeholders who therefore have an input into the manner in which business is conducted.

The ratio of insiders to outsiders is about 40:60, therefore the franchisees and block investors have a significant say in the manner of operations, which has worked out successfully for the Company, in spite of the fact that stock prices have not been as high as they could have been. Some of its big investors feel that McDonald's stock is undervalued, but the Company has rejected a restructuring of its real estate on the grounds that it would weaken its relationship with its franchisees (www.biz.yahoo.com). McDonald's is the world’s leading restaurant with sales that far outstrip its competitors (Industry Report).

Although many investors feel that the stock is undervalued, nevertheless, it is undoubtedly good stock value. 100 shares that cost $2250 are now valued at $2.4 million, even after accounting for 12 stock splits. (2005 fact sheet). The good relationship that it shares with its franchisees has helped it to achieve steady and sustained growth over the years and recent trends to improve its product have also yielded benefits to the Company. References: * Barr, Aaron. (2004). “Inside McDonald's: How ‘I’m lovin’ it’ and its five note signature took the world by storm” ADWEEK, Nov 8, 2004, 45(42): p 28(2).

[Online] Available in the Gale Database; http://galenet.galegroup.com/servlet/BCRC?vrsn=149&locID=embry&srchtp=art&c=1&ste=25&tab=2&tbst=tsAS&atp=SG&docNum=A124567038&art=Management+McDonalds&bConts=0; accessed 11/29/2005. * “Classic growth – Stocks” [Online] Available at: http://news.morningstar.com/classroom2/printlesson.asp?docId=3080&CN=COM * Carpenter, Dave. (2005) “McDonald’s shareholder going public.” [Online] Available at: http://biz.yahoo.com/ap/051110/mcdonald_s_investor.html?.

v=2 “Industry report: [Online] Available from the Gale Database at: http://galenet.galegroup.com/servlet/BCRC?vrsn=149&locID=embry&srchtp=ind&ids=Eating+places&c=1&iType=sic&mode=i&ste=85&tbst=tsIS&cind=5812+-+Eating+Places&tab=1024&docNum=I2501600098&bConts=16171 McDonalds Corporation: Roles and Responsibilities: [Online] Available at: http://www.mcdonalds.com/corp/invest/gov/govprinciples/roles_and_responsibilities.html * McDonalds Financial report (2004). [Online] Available at: http://64.26.27.

40/interactive/mcd2004financialreport/md/page_001.php * McDonalds 2005 Fact Sheet. [Online] Available at: http://mcd.mobular.net/mcd/90/8/10/