McDonalds

Chris Athens Ben Baker Chris Bolinger Josh Carver Jordan Guenther Jeff Ward

Team 1:

History
1948 McDonald brothers open the first McDonalds and names Speedee as their company image. 1954 Ray Krock, a multimixer salesman becomes the franchising agent. 1955- Ray Kroc opens the Des Plaines restaurant. The 1st days revenues $366.12 1957 Ray Kroc hands out free hamburgers to Salvation Army guests 1958 Sales grow 151% 1961 Ray Kroc buyout the McDonalds brothers for $2.7 million 1963 Ronald McDonald is introduced 1965 - McDonalds goes public with the companys first offering on the stock exchange for $22.50 per share. First television commercial is aired
http://www.youtube.com/watch?v=krXP_TUZqsk

History
1966 McDonalds stocks split for the first time.
1967 - Big Mac invented McDonalds in Canada and Puerto Rico open

1971 - Makadonaldo (Japan)

1973 - Egg McMuffin invented 1974 - Ronald McDonald House opened 1979 - Happy Meals introduced 1979-present - Continued growth

Problems
Customer Service McDonalds is currently ranked last amongst its top competitors in the FFHR subsector.
#1 Burger King #2 Wendys #3 McDonalds

This may not sound bad at first glance, but when you look at the fact that these three competitors hold 73% of the FFHR market, it puts it into perspective.

Problems (cont.)
Health Issues

SWOT Analysis - Strengths

Worldwide Brand Recognition

41% of all fast-food visits are for hamburgers

McDonalds has 44% of US fast-food hamburger business

Over 70% of the restaurants are independently owned

Ranked number one in Fortune magazines 2008 list of most admired food service companies. Overseas market Over 31,000 restaurants in over 120 countries.

SWOT Analysis Strengths (cont)

Quality measures through supply chain management Encourage new ideas from within Big Mac Egg McMuffin Large available amounts of capital for future restaurants due to holding a limited number of corporate owned restaurants. Economies of scale

SWOT Analysis - Weaknesses

Weak product development Poor relationships with franchisees Fluctuations in profit (which has been improved in 2008 after the franchising of many corporate owned restaurants)
Revenues & Profitability: McDonald's Corporation
25000.00 20.00% 15.00% 10.00% 5.00% 0.00% 2004 2005 2006 2007 2008 Year

20000.00 15000.00 10000.00 5000.00 0.00

Profit Margin (%)

US Millions

Revenues Net Income Profit Margin

SWOT Analysis - Opportunities

International expansion through continued franchise opportunities Only serving 1% of the worlds population Growth in the beverage industry (by 2011 $71.4 billion in sales with 70.8% being coffee drinks)

Introduction of local offerings (i.e. Tech Burger with special condiments and toppings)

SWOT Analysis - Threats

Mature industry Strength of competition More health-conscious consumers

Changing demographics
Fluctuation of foreign exchange rates Increasing commodity and fuel prices

Competition
Top Burger King 14% Wendys 13% Other strong competitors Sonic 6% Jack in the Box 4% Hardees 3% White Castle 1%

Marketing Techniques
Product Image Customers associate with the brand Domestic Global

Marketing Techniques (cont.)

Original symbol Speedee Golden Arches Building structure and colors Local advertising

Slogans
Your kind of place (1967) You deserve a break today (1971) We do it all for you (1965) Have you had your break today (1995) Im lovin it (2003)

Marketing Mix
Five Ps Marketing and Communications Responsibility McSpirit Nights Commercials Atmosphere

Global Marketing
National Marketing Campaign Marketing North America Hong Kong France Australia Catering to local needs across seas

Management In McDonalds
Ray Kroc
The quality of a leader is reflected in the

standards they set for themselves We take the hamburger business more seriously than anyone else You're only as good as the people you hire If there is time to lean there is time to clean

 Created by Fred Turner and Ray Kroc in 1961 All levels of managers in the McDonalds family go through training at this facility.
At McDonalds, our training mission is to be the best

McDonalds Center of Training Excellence

Hamburger University

talent developer of people with the most committed individuals to Quality, Service, Cleanliness and Value (QSC&V) in the world. Our strong commitment to the training and development of our people has resulted in many firsts and honors.

Management Continued
Hamburger University has given emphasis to consistent restaurant operations procedures, service, quality and cleanliness. Because of its success H.U. has become the global center of excellence for McDonalds operations training and leadership development. With this training it creates unity for the CEO to the local store manager, they all have the same goals in mind which is.

Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile. And by doing this we are our

customers' favorite place and way to eat."

Financial Health
We looked at 4 major aspects of financial health of McDonalds and their competitors Liquidity Leverage Rates of Return Stock Market Ratios We also took Altmans Z-Score into account to see how healthy these companies were during the recession.

Liquidity
The ability to meet current obligations We took into account the Current Ratio and the Quick Ratio.

Current Ratio = Current Assets/Current Liabilities. Quick Ratio = (cash + marketable securities + net receivables) / Current Liabilities

Current Ratio in 2008

2 1.5 1 0.5 0 MCD WEN BKC JACK SONC 1.39 1.11 0.76 0.89 0.88

 *If the current ratio is above 1, and the quick ratio is below 1, then a manager may need to look at the valuation of inventory or the inventory turnover.
2 1.5 1 0.5 0 MCD WEN BKC JACK SONC 1.34 0.89 *0.97 0.84

Quick Ratio for 2008

0.71

Leverage
The ratios between debt and equity which provides information about bankruptcy. We will look at the Debt-to Asset Ratio and the Debt-to-Equity Ratio Debt-to-Asset = Total Liabilities/Total Assets Debt-to-Equity = Long-term Debt/Shareholders Equity

Meaning of Ratios
Debt-to-Asset shows whether assets are financed through equity, value under 1, or financed through debt, a value above 1. Above 1, might mean trouble if the company is under pressure. Debt-to-Equity shows whether a company can generate new funds from the capital market. A higher ratio means a company is thought to have smaller new-financing capacity and will have trouble finding future financing funding.

Debt-to-Asset for 2008

1.5 1.08 1 0.53 0.5 0.49 0.69 0.6

0 MCD WEN BKC JACK SONC

Debt-to-Equity for 2008

2 1.5 1.03 1 0.5 0 MCD WEN BKC JACK 0.76 0.45 1.13

SONC had a -11.24 ratio largely due a buy back of treasury stock, because they thought their stock was undervalued.

Altmans Z-Score
The score analyzes the future success or failure of a company. Z-Score =

A x 3.3 + B x 0.99 + C x 0.6 + D x 1.2 + E x 1.4 A= EBIT/Total Assets B= Net Sales/Total Assets C= Market Value of Equity/Total Liabilities D= Working Capital/Total Assets E= Retained Earnings/Total Assets

Evaluation of Score
Score < 1.8 indicates bankruptcy is high Score > 1.8 but < 2.7 bankruptcy is fair Score >2.7 but < 3.0 bankruptcy is possible, but not likely, Score > 3.0 indicates bankruptcy is low and company is in good health.

McDonalds Score was

3.04 for 2008.

Return on Assests
Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives companies and organizations an idea as to how efficient their management is at using their assets to create earnings. In order to calculate return on assets, you must divide a company's annual earnings by its total assets; ROA is displayed as a percentage.

Return on Assets
ROA tells you what earnings were produced from invested capital or assets. ROA for public companies can vary substantially and will be highly dependent on the industry. This is why when using ROA as a comparative measure, it is best to compare it against a company's previous ROA numbers or the ROA of a similar company

Return on Assets
2008 ROA MacDonalds 15.2% Sonic 10.6% Burger King 7.10% Jack in the Box 7.60% Wendys -10.3% 5 year Average 10.5% 10.3% 3.20% 7.40% -4.50%

Return on Assets
This shows that if MacDonalds net income was generated from their total value of assets, the return would be right around 15 cents per dollar. It is also a great indicator of how efficient MacDonalds is at using their assets to generate income. On the other side however, Wendys would show a lose of 10 cents on the dollar if their net income is based off their total value of assets. Sonic would have a gain of 10 cents on the dollar while both Burger King and Jack in the Box would have 7 cents gain on the dollar.

Return on Equity
The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by showing how much profit a company makes with the money shareholders have invested. ROE is expressed as a percentage and calculated by dividing net income by shareholders' equity. ROE is useful for comparing the profitability of a company to that of other firms in the same industry.

Return on Equity
These numbers tell us how much profit is being produced from money that investors have provided to these companies. 15-20% is usually considered exceptional. For every dollar of income 20 cents can be credited to the investors capital. This ratio is often considered the most important. The main goal of any company is to maximize shareholder wealth. This ratio tells you and your investors how much money you are making off their money.

Return on Equity
2008 ROE MacDonalds 32.2% Sonic 44.1% Burger King 20.9% Jack in the Box 23.0% Wendys -55.9% 5 year Average 20.6% 36.3% 13.8% 19.3% -41.3%

Return on Equity
According to the information, Sonic and MacDonalds are leading the way by making 44 cents and 32 cents for every investors dollar respectively. Jack in the box makes roughly 23 cents per dollar while Burger King makes 20 cents. All four of these are considered to be outstanding. Wendys is not fairing very well. For every dollar an investor puts into Wendys, they are losing almost 56 cents in return. That is not what a company wants to see if they are looking for potential investors.

Stock Market Ratios

The three most common ratios used are: 1. Price-Earnings Ratio (P/E Ratio) 2. Earnings per Share (EPS) 3. Dividend-Yield Ratio

Price-Earnings Ratio (P/E)

The P/E ratio (price to earnings) of a stock is a measure of the price paid for a specific share, which is relative to the annual net income or profit which is earned by the company per share

P/E ratios are segmented between high and low A higher P/E ratio means that investors are paying more money for each unit of net income Therefore, the stock is more expensive if compared to another stock with a lower P/E ratio

McDonalds P/E Ratio

McDonalds has a current P/E ratio of 15.1. However, the companys P/E ratio for fiscal year end 2008 was 28.0.

either the stock is overvalued or the company's earnings have increased since the last earnings figure was published

Sonic Co. P/E Ratio

Sonic Corporation has a current P/E ratio of 12.2. The companys P/E ratio for fiscal year 2008 was 22.5

An end of year P/E ratio between 17-25 will usually indicate a growth stock, with earnings expected to increase substantially in the near future

Burger King & Jack in the Boxs P/E Ratios

The two companys current P/E ratios are 17.3 and 13.5 and their end of year ratios were 22.1 and 21.2 respectively
Investors are hoping that both of these stocks will be growth stocks that will increase substantially in the near future

Wendys/Arbys P/E Ratios

At the end of fiscal year 2008, this companys P/E ratio was 37.3
A company whose shares have an extremely high P/E ratio have high expected future growth in overall earnings, or the stock may be subject to a speculative bubble These stocks have the potential to trade in high volumes at prices that are considerably different than the intrinsic values

Earnings Per Share (EPS)

Earnings per share are the earnings which are returned on the initial investment amount. This is calculated by:

EPS = (net income - preferred dividends) /common shares outstanding

Fast Food Industrys EPS

Company McDonalds Sonic Burger King Wendys/Arbys Jack in the Box Date Dec. 2008 Aug. 2008 Jun. 2008 Dec. 2008 Sep. 2008 Actual EPS 3.76 0.97 1.38 -0.75 2.01 Last AVG Estimate 3.63 0.98 1.35 0.13 2.00

What Does This Mean?

McDonalds has reported an average annual increase in its EPS since 1998
This makes McDonalds more appealing to an investor because the basis of the EPS ratio is the earnings which are returned on the initial investment

McDonalds EPS Over the Last Decade

Dividend-Yield Ratio
The dividend yield on a company stock is the companys annual dividend divided by price per share
Company McDonalds Sonic Burger King Wendys/Arbys Price/Share $54.82 NA $22.68 $5.30 Annual Dividend $2.00 NA $0.25 $0.06 Dividend Yield 3.65% NA 1.10% 1.13%

Jack in the Box

NA

NA

NA

How Does This Affect McDonalds?

McDonalds has been consistently increasing its dividends for the past thirty years
From 1998, up until 2007, this dividend growth stock has delivered an annual average total return of 11% to its shareholders Over the past ten years, the annual dividend payments have increased by an average of almost 25% annually, which is much higher than the before mentioned growth in EPS

This 25% growth in dividends translates into McDonalds dividend payment doubling nearly every three years

Dupre Elementary 1st grade class

If you could eat at McDonalds or Burger King for lunch today, which one would you pick?
94% responded MCDONALDS with thunderous cheers 6% responded Burger King without much enthusiasm

Get the kidsand the parents will follow.

Past Strategies
Product Development
Hits: Fries, Happy Meal, Big Mac, Egg McMuffin, Salads, Apple Slices, Yogurt Parfaits, & Promotions Misses: McPizza, Fajita, Carrot Sticks, McLean, and the Arch Deluxe

Past Strategies (cont.)

Market Development
Hit: International growth Miss: Over-expansion in US
Alternative locations

Forward Integration
Distribution through franchisees with control over store presentation, menu items

New Strategies
Product Development: Focus on core business
Quality and taste issues
Food delivery methods

Family Value Meal

Thursdays $1.59 Happy Meal

New Strategies (cont.)

Redevelop Franchisee Relationships

Market Penetration and Development

Continue International expansion

Cost Reductions
Home office cost reductions Franchising corporate owned restaurants

Recommendations
Improvements in: Customer Service
Focus on team, not individuals Reward the behavior that you want

Training/Compensation
Training in customer service, speed and accuracy Increase pay to attract more qualified applicants

Technology
Improvement of order verification system

Continued Growth of International Market

Thank you from Team 1