McDonalds Financial Ratios and Financial Statements Analysis and Review

In "McDonalds Inc. 2018 Financial Statements and Financial Ratios: Defined, Discussed, and Analyzed for 5 Years” that was written by, Paul Borosky, MBA., doctoral candidate, and owner of Quality Business Plan and Finance Homework Help, the author summarized McDonalds Inc.'s 2019 10k, McDonalds 2018, 10k annual report, McDonalds 2017 10k annual report, and McDonalds 2016 10k annual reports as the basis for information gathering.  After all of McDonalds 10k annual statements were collected, which included McDonalds Income Statements and McDonalds Balance Sheets, he then used proprietary financial templates to calculate different financial ratios such as McDonalds ROE, ROA, and debt ratio.

McDonalds 2015 to 2018 Income Statement Summarized

McDonalds Income Statement 2018
20182017201620152014
Revenues             21,025             22,820             24,621             25,413              27,441
COGS              3,154              4,034              4,897              5,552               6,130
Gross Profit             17,871             18,787             19,724             19,861              21,311
 
SG&A              2,200              2,231              2,384              2,434               2,488
Depreciation                   -                   -                   -                   -                    -
R & D                   -                   -                   -                   -                    -
Other                (236)             (1,163)                   76                 209                    19
Operating Expenses              7,084              8,166              9,520             10,072              10,856
EBIT              8,823              9,553              7,745              7,145               7,949
Other Income                   25                   58                   (6)                  (49)                     1
Interest Expense                 981                 921                 884                 638                  576
EBT              7,816              8,573              6,866              6,556               7,372
Taxes              1,892              3,381              2,179              2,026               2,614
Net Income              5,924               5,192               4,687               4,529                4,758

McDonalds 2018 Revenues Analysis:

Revenues:  McDonald’s revenues have been continually declining over the last five years.  In 2014, the organization reached $27.4 billion in sales.  However, in 2018, revenues fell to $21 billion.  This shows that the firm is selling less products.  A possible reason for the sales decline could be due to increased competition.

Revenues  
Revenues and Growth
20182017201620152014
Revenues             21,025             22,820             24,621             25,413              27,441
Revenue Growth-7.87%-7.3%-3.1%-7.4%N/A

McDonalds 2018 Cost of Goods Analysis:

COGS:   McDonald’s cost of goods sold, as a percentage of sales, has been dropping at a faster rate as compared to revenues.  Specifically, McDonald’s cost of goods sold has decreased by 15.2% in the last four years.  In the same timeframe, revenues have dropped by 6.4%.  This shows that the company is doing a better job negotiating prices for raw materials.

COGS as % of Revenues
Income Statement 2018
20182017201620152014
Revenues             21,025             22,820             24,621             25,413              27,441
COGS              3,154              4,034              4,897              5,552               6,130
COGS %
Revenues
15.0%17.7%19.9%21.8%22.3%
COGS Growth-21.81%-17.63%-11.80%-9.42%

McDonalds 2018 SG&A Analysis:

SG&A:   McDonald’s SG&A has steadily decreased over the last several years as well.  This indicates that the firm is spending less money on advertisements and reducing other overhead costs.

SG&A as % of Revenues
Income Statement 2018
20182017201620152014
Revenues             21,025             22,820             24,621             25,413              27,441
SG&A              2,200              2,231              2,384              2,434               2,488
SG&A %
Revenues
10.5%9.8%9.7%9.6%9.1%

McDonalds 2015 to 2018 Balance Sheet Summarized

McDonalds Balance Sheet
Column120182017201620152014
Cash                  866            2,464            1,223            7,686            2,078
Short Term Investment                    -                 -                 -                 -                 -
Account Receivable                2,442            1,976            1,474            1,299            1,214
Inventory                    51                 59                 59               100               110
Other                  695               828            2,092               559               783
Current Assets                4,053             5,327             4,849             9,643             4,186
Net PPE              22,843           22,448           21,258           23,118           24,558
Goodwill                2,331            2,380            2,337            2,516            2,735
Other                    -                 -                 -                 -                 -
Total Assets              32,811            33,804            31,024            37,939            34,281
 
Accounts Payable                1,208               925               756               875               860
Accrued Expense                1,284            1,425               481            1,612            1,391
Accrued Taxes                  481               541               534               464               497
Notes Payable                    -                 -
LT Debt - Current                    -                 -                 77                 -                 -
Other                    -                 -                 -                 -                 -
Total Current Liabilities                2,974            2,891            4,849            9,643            2,748
 
LT Debt              31,075           29,536           25,879           24,122           14,990
Other                1,096            1,154            2,064            2,074            2,066
Total Liabilities              26,553            30,536            28,820            30,851            21,428
 
Common Stock                7,393            7,089            6,775            6,550            6,256
Treasury             (61,529)          (56,504)          (52,109)          (41,177)          (35,177)
Retained Earnings              50,487           48,326           46,223           44,595           43,295
Other                    -                 -                 -                 -                 -
Total Equity               (6,258)           (3,268)           (2,204)            7,088            12,853
Total Equity & Liability              32,811            33,804            31,024            37,939            34,281

McDonalds 2018 Cash Analysis:

Cash:  McDonald’s cash position has fallen from $2 billion to just under $900 million in the last five years.  This indicates a substantial cash drain for either investment purposes (not likely) or maintaining operations (probable).  Unfortunately, these actions cannot be maintained without leading to short-term to moderate-term cash issues.

Cash as a % of Sales
Balance Sheet
20182017201620152014
Cash                  866            2,464            1,223            7,686            2,078
% of Sales4.1%10.8%5.0%30.2%7.6%
% of Total Assets2.6%7.3%3.9%20.3%6.1%

McDonalds 2018 Accounts Receivable Analysis:

Accounts Receivable: McDonald’s Accounts Receivable has grown from $1.2 billion to $2.4 billion in the last five years.  This indicates that the company is offering lenient credit to franchisees.  The longer it takes McDonald’s to collect royalties and other payments from their franchisees, the longer it will take the company to pay their bills.  This may be an important cause for McDonald’s cash position decline.

Accounts Receivable as a % of Sales
Balance Sheet
Column120182017201620152014
Accounts Receivables                2,442            1,976            1,474            1,299            1,214
% of Sales11.6%8.7%6.0%5.1%4.4%

McDonalds 2018 Accounts Payable Analysis:

Accounts Payable:  McDonald’s Accounts Payable has been steadily increasing from $860 million in 2014 to $1.2 billion in 2018.  In other words, in the last five years, McDonald’s has taken longer and longer to pay their bills.  This is a fantastic strategy to increase working capital.  However, couple this with a declining cash position, and this may indicate potential financial strains in the near to moderate time span.

Accounts Payable as a % of Sales
Balance Sheet
Column120182017201620152014
 Accounts Payable                1,208               925               756               875               860
% of Sales5.7%4.1%3.1%3.4%3.1%

McDonalds 2018 Financial Ratios

McDonalds Liquidity Ratios
Ratios20182017201620152014
Current Ratio                  1.36             1.84             1.00             1.00             1.52
Cash Ratio                  0.29             0.85             0.25             0.80             0.76
McDonalds Asset Utilization
Ratios20182017201620152014
Total Asset Turnover                  0.64             0.68             0.79             0.67             0.80
Fixed Asset Turnover                  0.92             1.02             1.16             1.10             1.12
McDonalds Profitability Ratios
Ratios20182017201620152014
Return on Assets18.05%15.36%15.11%11.94%13.88%
Return on Equity-94.66%-158.87%-212.61%63.90%37.02%
Net Profit Margin28.18%22.75%19.03%17.82%17.34%
McDonalds Long-term Debt
Ratios20182017201620152014
Debt Ratio94.71%87.38%83.41%63.58%43.73%

McDonalds Current Ratio Analysis:

Current Ratio: McDonald’s current ratio has fluctuated between 1.5 to 1.36.  This indicates that the company will be solvents for the short to moderate term.

McDonalds 2018 Cash Ratio Analysis:

Cash Ratio:  A more concerning financial ratio is McDonald’s cash ratio.  The company has decreased their cash ratio from .76 to .29.  This may indicate that the company is changing their management strategy of current assets.  In other words, the company is carrying less cash and more accounts receivable or other current asset line items.

McDonalds 2018 Inventory Turnover Analysis:

Inventory Turnover:  Inventory turnover for the company has increased from 249 in 2014 to 411 in 2018.  This indicates that the company is carrying less inventory.  This is fantastic because less inventory means using less restaurant space for storage.  However, this also means that if the restaurant does not order inventory optimally, then sellouts are bound to happen.  This will inevitably lead to lost revenues.  Not so great.

McDonalds 2018 Accounts Payable Turnover Analysis:

Accounts Payable Turnover:  Accounts Payable turnover has decreased from 31.9 in 2014 to 17.4 in 2018.  This action screams that the firm is paying their Accounts Payable at significantly slower pace over time.  In other words, McDonald’s vendors have to wait longer for their checks.  This may inevitably lead to less loyalty by suppliers.

McDonalds 2018 Return of Assets Analysis:

Return on Assets:  McDonald’s return on assets has increased from 13.88% in 2014 to 18.05% in 2018.  This increase indicates that the company is continually utilizing their assets more efficiently.

McDonalds 2018 Return of Equity Analysis:

Return on Equity:  The organization’s return on equity has fallen from 37.02% in 2014 to a -94.66% in 2018.  This is a huge misnomer, in my opinion.  What I mean by this is that the company is not significantly lowering their return on equity per se.  The main driver, based on research that I have done, seems to be that the treasury stock the company is repurchasing is driving down the return on equity.  I would bet that if treasury Stock is removed from the return on equity calculation, a significant improvement would be found.

McDonalds 2018 Profit Margin Analysis:

Net Profit Margin:  The company’s net profit margin has climbed from 17.3% in 2014 to 28.18% in 2018.  Because sales have fallen in this timeframe, this indicates that the company is cutting costs to increase their net profit margins.  Unfortunately, over the long-term, cost-cutting will not be able to help drive up the net profit margin.  In other words, the company needs to start selling more along with cost-cutting measures.