McDonald

s
Team 1:

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

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)

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

Hamburger University

McDonalds Center of Training

Excellence

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

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

Quick Ratio for 2008

*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.

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

Debt-to-Equity for 2008

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
ideaas to how efficient theirmanagement
isat 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
ROAtells 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 againsta company'sprevious 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 incomereturnedas a
percentageof shareholders equity.
Return on equitymeasures a corporation's
profitabilityby showing how muchprofit a
company makeswith the money shareholders have
invested.
ROE is expressed as a percentage and calculated
by dividing net income by shareholders' equity.
ROE is usefulfor 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

Date

Actual EPS

Last AVG
Estimate

McDonalds

Dec. 2008

3.76

3.63

Sonic

Aug. 2008

0.97

0.98

Burger King

Jun. 2008

1.38

1.35

Wendys/Arbys

Dec. 2008

-0.75

0.13

Jack in the Box

Sep. 2008

2.01

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

Price/Share

Annual Dividend

Dividend Yield

McDonalds

$54.82

$2.00

3.65%

Sonic

NA

NA

NA

Burger King

$22.68

$0.25

1.10%

Wendys/Arbys

$5.30

$0.06

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
st
1 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