MacDonald Financial Report 2016

Running head: MACDONALD’S FINANCIAL REPORT 2016 ANALYSIS 1

MacDonald’s Financial Report 2016 Analysis

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MACDONALD’S FINANCIAL REPORT 2016 ANALYSIS 2

MacDonald’s Financial Report 2016 Analysis

The key to successful business performance in the current day is a company’s ability to

identify and exploit strategic market positions. Also, it should be capable of coming up with

excellent ways of maintaining its financial statistics at the desired levels. This way, critical

performance aspects such as profits, stock performance, revenue generation and liquidity ratios

should depict stability. Undoubtedly, Macdonald’s position over the years hasn’t been wrong

compared to others even if it has been experiencing some ups and downs at times. A close

examination of its 2016 financial report can justify its position as a stable performer despite

inconsistencies at times.

As one of the top performers in the food industry, MacDonald’s has a deep conviction

that provision of great-tasting food via franchise is the best technique. Also, it believes that it is

paramount to delivering locally-relevant client experiences which guarantee profitability (Purdy,

2017). MacDonald’s has also been getting a financial edge due to its global experiences. In

collaboration with its franchisees, its business also realizes excellence since it can develop and

maintain operating standards, establish diversified marketing concepts, and stabilize its product

and marketing strategies (Martin, 2009).

MacDonald’s Revenue and Income

Being particular to the financial position as the 2016 report depicts, MacDonald’s usually

gets its revenues from the company’s operated restaurants. Also, the fees that its franchisees

generate is another reliable source and include rent and royalties where the agreed percent on

sales determines what the company obtains. In spite of that, the fees vary by type of the

franchise. The company’s investment in every franchise is not the same, and local business

MACDONALD’S FINANCIAL REPORT 2016 ANALYSIS 3

conditions also affect what its affiliate restaurants generate (MacDonald’s Financial Report,

2016). As a result, there hasn’t been a standard performance in the key areas: performance will

go up at times while going low in other cases.

From the company’s data, it is apparent that the revenue has been on a gradual decline

since 2013. Being at $18,875 (millions) by that year, MacDonald’s went further to get $18,169 in

2014, $16,488 in 2015, and $ 15, 295 in 2016 (MacDonald’s Financial Report, 2016). There

have been issues affecting revenue generation, but the company has been responding sufficiently

to ensure that its liquidity ratios remain at the preferred market levels. As a way to resist the

market pressures, MacDonald’s has been diversifying its techniques occasionally.

An apparent case with declining revenue is that it goes further to affect the company’s

targeted income. However, even if there has been variation over the years where a decline from

2013 to 2016 is evident, the company has realized its targets. The only thing is that there have

been increased expenses with marketing and legal procedures changing. Other issues include

competition and the need to grow assets. Capital expenditure has also been affecting income

levels particularly in instances where opening and stocking of a new restaurant becomes

inevitable.

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Category 1

Revenue decline from 2013

2016 2015 2014 2013

MACDONALD’S FINANCIAL REPORT 2016 ANALYSIS 4

Liquidity Ratios

It is essential to examine the key areas where a company’s financial performance is

exceptional, and liquidity ratios bring another significant trend that helps to understand the

company better. Liquidity ratios assess the company’s ability to meet its debt obligations. As a

result, it is a measure of its safety margin (Tracy, 2012). When they are at stable levels, the

company can cover its short-term debts in the case of an emergency. The ratios include the

current, quick ratio, and cash ratio. By examining MacDonald’s financial report of 2016, its

current quotient, quick ratio, and cash ratios stood at 1.401, 0.783, and 0.352 respectively.

Indeed, it showed a significant difference compared to the position in 2015 where the same were

at 3.271, 3.054, and 2.602 respectively.

Financial Position

The financial position of a company examines four critical but interrelated aspects that

depict its ability to finance key operations as well as meeting its emergencies. Precisely, they

include the assets, total debt, shareholders’ equity (deficit), and shares outstanding. Like in other

cases, MacDonald’s hasn’t been having a gradual increase or decrease but highs and lows about

the same but within the expected levels. For instance, the total assets were at $ 31,024 (millions)

in 2016, $37,939 in 2015, and $34,227 in 2014.

Financial Position of MacDonald’s ($ millions)

2016

2015

2014

2013

Total assets

31,024

37,939

34,227

36,626

Total debt

25,956

24,122

14,936

14,130

Shareholders’ equity

2,204

7,088

12,853

16,010

Shares outstanding

819

907

963

990

MACDONALD’S FINANCIAL REPORT 2016 ANALYSIS 5

From the above table, it is straightforward that despite the company’s stable performance

in the market, there has been inevitable inconsistencies year after the other. In this case, the

company may need to reexamine its sales structure and asset management aspects to ensure that

it stabilizes its financial performance. In spite of that, there is no question about its ability to

meet the critical financial obligations, which depicts it as a top performer in the corporate world.

A graphical representation of MacDonald’s financial position: data obtained from financial

report, 2016.

In summation, MacDonald’s continues to experience exceptional growth as time

advances. As one of the business at the helm of the food industry, there is so much that its

competitors can learn from it regarding business management and operation through franchisees.

Despite some cases where performance has been low, which is inevitable in the current market

scenario, the company has been thriving regardless of what the market presents. Primarily, its

brand, business structure, size, and extensive reach have been the defining aspects.

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2016 2015 2014 2013

Financial Position

assets debt equity shares

MACDONALD’S FINANCIAL REPORT 2016 ANALYSIS 6

References

MacDonald’s Financial Report. 2016. United States Securities and Exchange Commission.

Retrieved from https://corporate.mcdonalds.com/content/dam/gwscorp/investor-relations-

content/annual-reports/2016%20Annual%20Report.pdf

Martin, R. L. (2009). The design of business: Why design thinking is the next competitive

advantage. Harvard Business Press.

Purdy, C. (2017). McDonald’s isn’t just a fast-food chain—it’s a brilliant $30 billion real-estate

company. N.p.: Quartz.

Tracy, A. (2012). Ratio analysis fundamentals: how 17 financial ratios can allow you to analyse

any business on the planet. RatioAnalysis. net.

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