Fina405 Case0 Mcdonalds Fsa
To: Mr. Toughlove
From: Blue Sky Portfolio Management Summer Interns
Time: Jan 1st 2011
Subject: Financial analysis & possibility of investment
INTERNS:
Sam Garousi
Sadegh Habibi
Amir Izadpanah
Ramez Gabra
Main Issue:
By looking over McDonalds recent financial statements, should Blue Sky Portfolio Management consider McDonald’s as a possible investment in the near future?
Recommendation:
Investing in McDonald’s industry is a decent option that Blue Sky Portfolio Management can take in to consideration.
Analysis:
In McDonalds it can be seen that operating margin is increasing in the past two years. This would show that the McDonald’s revenue before tax after deducting direct costs and overhead is increasing. High operating margin shows that McDonald is earning more per dollar of sales that is more favourable compare to similar corporations. However, operating margin include McDonalds ordinary business operations and excludes other revenue, losses and liabilities. Now by observing net profit margin it is noticeable that McDonalds is getting stronger in enforcing their pricing policies, cost structure and production efficiencies. Also, net profit margin for McDonalds illustrates lower long-term loan liabilities compare to year 2008. These ratios can be observed in exhibit 2.
By looking deeper in the vertical common-size balance sheet (Exhibit 1) it is observable that total asset of McDonalds is increasing from 2008 to present. Therefore, the total equity or liability of the company need to change to match the increasing total asset. McDonald’s total equity have decreased and total liability have increase in the last two years. This shows that return on equity increases because there are less outstanding equity. Even though increase in liability can raise the risk of a company, McDonalds is a trustworthy company and play as a first mover in the food industry, which it can make them a reliable company for investment.
Now by
From: Blue Sky Portfolio Management Summer Interns
Time: Jan 1st 2011
Subject: Financial analysis & possibility of investment
INTERNS:
Sam Garousi
Sadegh Habibi
Amir Izadpanah
Ramez Gabra
Main Issue:
By looking over McDonalds recent financial statements, should Blue Sky Portfolio Management consider McDonald’s as a possible investment in the near future?
Recommendation:
Investing in McDonald’s industry is a decent option that Blue Sky Portfolio Management can take in to consideration.
Analysis:
In McDonalds it can be seen that operating margin is increasing in the past two years. This would show that the McDonald’s revenue before tax after deducting direct costs and overhead is increasing. High operating margin shows that McDonald is earning more per dollar of sales that is more favourable compare to similar corporations. However, operating margin include McDonalds ordinary business operations and excludes other revenue, losses and liabilities. Now by observing net profit margin it is noticeable that McDonalds is getting stronger in enforcing their pricing policies, cost structure and production efficiencies. Also, net profit margin for McDonalds illustrates lower long-term loan liabilities compare to year 2008. These ratios can be observed in exhibit 2.
By looking deeper in the vertical common-size balance sheet (Exhibit 1) it is observable that total asset of McDonalds is increasing from 2008 to present. Therefore, the total equity or liability of the company need to change to match the increasing total asset. McDonald’s total equity have decreased and total liability have increase in the last two years. This shows that return on equity increases because there are less outstanding equity. Even though increase in liability can raise the risk of a company, McDonalds is a trustworthy company and play as a first mover in the food industry, which it can make them a reliable company for investment.
Now by
Bibliography: McDonalds Corporation. 2010 Annual Report. (2011), Oak Brook, Illinois, USA. <http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/C-%5Cfakepath%5Cinvestors-2010-annual-report.pdf> Yum! Brands Inc. 2010 Annual Report. (2011), Louisville, Kentucky, USA. <http://www.yum.com/investors/annualreport/10annualreport/downloads/pdf/2010AnnualReport.pdf>