McDonald's Financial Report and Financial Analysis: 2015 to 2019

McDonald's Financial Report and Financial Analysis started with an in-depth review of McDonald's 10k Annual report, specifically, McDonald's income statement and balance sheet. 

Next Paul Borosky, MBA., summarized their financial information and input it into a proprietary financial model, which shows their income statement and balance sheet trends as well as calculations for McDonald's financial ratios, and financial ratio trends covering 5 years.

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McDonald's Financial Report and Analysis by Paul Borosky, MBA.
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Each Public Company Financial Report will include:

  • Summarized income statement for the last 5 years.
  • Summarized balance sheet for the last 5 years.
  • Summary analysis by myself of important income statement, balance sheet, and financial ratio trends and other happenings.
  • Five year’s worth of over twenty common financial ratios presented with formulas, calculations, and analysis tips for each ratio.
  • Line by line description, explanation, and analysis tip for most financial statement line items and financial ratios.
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  • Each section includes an “in other words” segment.  This is were the researcher uses plain English to explain finance concepts.

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McDonald's Summary

McDonald’s stock price started 2019 at $181.96.  It ended the year with a stock price of $202.62.  This is a growth rate annually of 11.35%.  From an investor’s perspective, this growth rate well exceeds overall market returns from other industry competitors.

McDonald’s has been consistently paying dividends over the last five years.  Further, their dividend payments have been growing continuously as well.  Investors should expect this growth rate to continue for your seeable future. 

McDonald's Income Statement Summary

Cost of Goods Sold

McDonald’s cost of goods, as compared to revenues, was about 22% in 2015, in the next several years, their cost of goods, as a percentage of revenues, would continually decline until it reached a 14.1% ratio in 2019.  This shows that the organization is taking action to improve its gross profit margin.  Changes may have included better-negotiating strategies with vendors.  Also, the company may be eliminating the middleman and their supply chain by developing more supply stream activities in-house.  For example, the firm may be purchasing warehouses or even farms to ensure low cost for their products.

McDonald's Summary Income Statement 2019

Column1 2019 2018 2017 2016 2015
Revenues                    21,076                    21,025                    22,820                    24,621                      25,413
COGS                      2,980                      3,154                      4,034                      4,897                        5,552
Gross Profit                    18,096                    17,871                    18,787                    19,724                      19,861
SG&A                      2,229                      2,200                      2,231                      2,384                        2,434
Depreciation                      1,617                      1,482                      1,363                      1,516                        1,555
R & D                            -                            -                            -                            -                             -
Other                            -                            -                            -                            -                             -
Operating Expenses                    12,006                    12,020                    13,267                    16,877                      18,267
EBIT                      9,069                      8,823                      9,553                      7,745                        7,145
Other Income                            -                            -                            -                            -                             -
Interest Expense                      1,121                         981                         921                         884                           638
EBT                      8,018                      7,816                      8,573                      6,866                        6,556
Taxes                      1,992                      1,892                      3,381                      2,179                        2,026
Net Income                     6,025                     5,924                     5,192                     4,687                      4,529

McDonald's Balance Sheet Summary

Inventory

McDonald’s inventory had fallen from $100 million in 2015 to approximately $50 million in 2019.  The significant reduction in inventory could be a result of the firm's improved products ordering business models.  However, a better explanation for the reduction in inventory would be that the company may be divesting or selling corporate stores and moving more towards managing franchisees.

McDonald's Summary Balance Sheet 2019

Column1 2019 2018 2017 2016 2015
Cash                           898                       866                    2,464                    1,223                    7,686
Short Term Investment                              -                         -                         -                         -                         -
Account Receivable                        2,224                    2,442                    1,976                    1,474                    1,299
Inventory                             50                         51                         59                         59                       100
Other                              -                         -                         -                         -                         -
Current Assets                       3,557                  4,053                  5,327                  4,849                  9,643
Net PPE                      24,160                  22,843                  22,448                  21,258                  23,118
Goodwill                        2,677                    2,331                    2,380                    2,337                    2,516
Other                              -                         -                         -                         -                         -
Total Assets                    47,510                32,811                33,804                31,024                37,939
Accounts Payable                           988                    1,208                       925                       756                       875
Accrued Expense                        1,372                    1,284                    1,425                       481                    1,612
Accrued Taxes                           578                       481                       541                       534                       464
Notes Payable                              -                         -                         -
LT Debt - Current                             59                         -                         -                         77                         -
Other                              -                         -                         -                         -                         -
Total Current Liabilities                        3,621                    2,974                    2,891                    4,849                    9,643
LT Debt                      34,118                  31,075                  29,536                  25,879                  24,122
Other                              -                         -                         -                         -                         -
Total Liabilities                    39,300                26,553                30,536                28,820                30,851
Common Stock                        7,653                    7,393                    7,089                    6,775                    6,550
Treasury                    (66,328)                (61,529)                (56,504)                (52,109)                (41,177)
Retained Earnings                      52,930                  50,487                  48,326                  46,223                  44,595
Other                              -                         -                         -                         -                         -
Total Equity                     (8,210)                 (6,258)                 (3,268)                 (2,204)                  7,088
Total Equity & Liability                    47,510                32,811                33,804                31,024                37,939

McDonald's Financial Ratio Summary and Analysis

Quick Ratio

McDonald’s quick ratio had ranged from 1.82 in 2017 to .97 in 2019.  A .97 quick ratio shows that the firm has sufficient liquid assets to cover its current liabilities, regardless of inventory count.  However, in the restaurant industry, inventory turns over relatively quickly.  This only adds an additional layer of solvency for the organization.

Days Sales Outstanding

McDonald’s days' sales outstanding ended 2015 at 18.6.  In the next several years, their days' sales outstanding would grow to 38.5.  This shows that most of the expansion within the organization has come from franchises opening stores as compared to corporate-owned expansion.  As this strategic trend increases, investors should expect the company’s days sales outstanding to increase as well.  However, with an improved Accounts Receivable strategic models, the company may be able to reach an optimal 30 day days sales outstanding point.

Net Profit Margin

 McDonald’s net profit margin ended 2015 at 17.8%.  In the next several years, the firm would systematically improve their net profit margin to 28.6% in 2019.  The main reason for the improved net profit margin is the organization’s cost-cutting measures, specifically in their cost of goods and operational activities.  Unfortunately, though, the company’s net profit margin cannot grow too much more without substantial revenue growth.  Cost-cutting measures can only improve net profit margin so far without correlated revenue growth.

McDonald's Liquidity Ratios 2019

Ratios 2019 2018 2017 2016 2015
Current Ratio                           0.98                    1.36
Cash Ratio                           0.25                    0.29
Quick Ratio                           0.97                    1.35
Net Working Capital                            234                     386
McDonald's Asset Utilization 2019
Ratios 2019 2018 2017 2016 2015
Total Asset Turnover                           0.44                    0.64
Fixed Asset Turnover                           0.87                    0.92
Days Sales Outstanding                         38.52                  42.39
Inventory Turnover                       421.52                411.45
Accounts Receivable Turnover                           9.48                    8.61
Working Capital Turnover                         90.07                  54.50
AP Turnover                         21.33                  17.41
Average Days Inventory                           1.15                    1.13
Average Days Payable                           0.06                    0.05

McDonald's Profitability Ratios 2019

Ratios 2019 2018 2017 2016 2015
Return on Assets 12.68% 18.05%
Return on Equity -73.39% -94.66%
Net Profit Margin 28.59% 28.18%
Gross Profit Margin 85.86% 85.00%
Operating Profit Margin 43.03% 41.96%
Basic Earning Power 19.09% 26.89%
ROCE 20.66% 29.57%
Capital Employed                       43,889                29,838
ROIC 27.94% 28.79%

McDonald's Long-term Debt 2019

Ratios 2019 2018 2017 2016 2015
Debt Ratio 71.81% 94.71%
Debt/Equity -415.57% -496.54%
Times Interest Earned                           8.09                    8.99