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Mcdonald's Financial Analysis

5685 words - 23 pages

Business Strategy Analysis: McDonald’s Corporation is the world’s largest fast-food chain in the restaurant industry, serving on average 69 million customers a day. Their stores are corporate or franchised owned, with franchising being highly beneficial to their success by producing 32% of their total revenue. McDonald’s is in a highly competitive industry with market saturation because of low barriers to enter. The industry competes on price, quality, and service. McDonald’s faces competition with full-service restaurants and fast-food restaurants in the area. Their main competitors are Burger King, YUM! Brands, and Wendy’s International. The industry has faced scrutiny on the quality of ...view middle of the document...

The five P’s actions make up McDonald’s brand and provide a framework for prioritizing goals. For People, they looked to their customers and understood patterns have changed with more snacking and drive-thru, thus they responded with products like Snack wraps, and a reconfigured drive-thru. The restaurants were renovated or rebuilt, also price and promotion through the dollar menu. The Plan to Win is made of three pillars, menu innovation, store renovation, and an upgrade of the ordering experience, which help McDonald’s remain sustainable with their profits. McDonald’s responds to customer’s demands by changing their product line accordingly. When first founded in 1955, they focused on the quality of their products with a limited menu of burgers, fires, and beverages. McDonald’s has shifted this strategy by broadening their product portfolio, with the adaptation of salads and chicken. Additionally, to compete with Starbucks and local coffee shops, they have launched McCafe, which features high quality coffee drinks. As well as, invest in their current stores of operations to make a more relaxed environment. They need to maintain a modern environment and stay relevant with food trends. The last pillar is to upgrade the ordering experience, which can be accomplished through technological advances with the drive thru and front counter. They can sustain profitable by following the three-legged stool idea, with all three forces working together and implementing the Plan to Win. As long as, McDonald’s continues to follow their successful strategy of a Plan to Win and the three legged stool their return on equity will not revert to its cost of capital.
Accounting Analysis: The accounting method of McDonald’s is in compliance with GAAP and its financial statements are easily comparable to other firms with similar accounting policies. From McDonald’s financial statements, the key accounting policies include consolidation, revenue recognition, advertising costs, property and equipment, goodwill, and long-lived assets. The consolidated financial statements include company and subsidiaries, and the consolidation is under equity method. A significant part of McDonald’s operating income is generated outside the U.S, and foreign currency earned by subsidiary is translated to US dollars. McDonald’s revenue recognition consists of sales by Company-operated restaurants and fees from franchised restaurants. The revenue from Company-operated restaurants is recognized on a cash basis. Advertising costs are included in operating expenses and increased steadily from 2010 to 2012. Property and equipment accounts for a large amount in total asset and are depreciated over straight-line basis. McDonald's goodwill primarily results from purchases of restaurants from franchisees and ownership increases in subsidiaries or affiliates. Impairment tests are conducted for long-lived asset (include goodwill) every year.
Generally speaking, McDonald’s accounting methods...

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