Current financial positon
A Study of McDonald’s financial statements and calculation of its basic ratios are useful tools in determining current financial positon of the company. Iryna Putilina of CSUB Accounting and Finance Major conduct following Ratio analysis. As a level for this analysis, McDonalds will be compared with five of their top competitors and five of their lower rivals based solely on their revenues. McDonald’s top five top Rivals are “Yum Brands Inc., Wendy’s/Arby’s Group Inc., Jack in the Box Inc., Cracker Barrel Old Country Store Inc., and Dominos Pizza Inc. Its bottom five competitors in the industry are Brazil Fast Food Corporation, Morgan’s Foods Inc., Rick’s Cabaret International Inc., Nathan’s Famous Inc., and Good Times Restaurants Inc.” (Putilina, 2010).
The graph bellow shows McDonald’s stock prices in compared to its main rival’s stock prices, “Yum Brands Inc. was taken from November 1, 2009 to November 1, 2010. Yum Brands manages five of the world largest franchises: Pizza Hut, Kentucky Fried Chicken (KFC), Taco Bell and All American Food Restaurants (A&W)”. (Putilina, 2010). McDonald’s price went up by 22.3 percent, which is $14.01 per share from $62.72 to $76.73 during this period. Similarly, Yum Brand’s price also manage to climbed to 36.9 percent,
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McDonald’s Corporation Common S (Putilina, 2010)
In Table 1 (See Appendix 2), it shows McDonald’s standing in the fast food industry in terms of the profitability ratios compared to the other rival companies. The Profitability ratios are important because it allows the investors to “evaluate and decide if the company is healthy for investment and what returns to expect on their investment” (Putilina, 2010). McDonald’s is currently holding a strong place among its competitors.
The return on investment (ROI) of McDonalds is 20.6 percent, which is less than the industry average rate of investment of 29.9 percent and also their top five rivals with 30.2 percent. Likewise, return on equity (ROE) of McDonald’s is 23.9 percent, which is lower than the industry average rate of equity of 28.2 percent also its top five rivals with 45.0 percent. These ratios can potentially reduce McDonald’s market value because ROI and ROE are two main ratios investors will be interested in and analyze when it comes to investment.
In table 2 (See Appendix 3), show’s McDonald’s Liquidity Ratios in compared with it Rivals. Similarly, the ratios will help define McDonald’s position among its rivals. “The liquidity ratios are important to debtors to see the strength of credit rating of a particular company” (Putilina, 2010). Here, McDonald’s liquidity ratio is 28.3 percent, which is close to the industry average liquidity ratio and also its rivals ratios.
In Table 3 (See Appendix 3), it illustrations McDonald’s debt ratios. This helps show the measurements of McDonald’s ability to pay their debts on time. Here, the quick ratio of McDonalds is 0.6, which is much lower than the industry average quick ratio, which is 3.4 and also their top five competitors of 2.3. Likewise, the long- term debt to equity ratio of McDonald’s is 0.6, which is also much lower than the industry average of 4.4 and their rivals of 2.4.
In Table 4 (See Appendix 3), it shows McDonald’s asset management ratios. The assets management ratios are “important indicators of the company’s management strategies and internal decision-making” (Putilina, 2010). The asset turnover ratio of McDonald’s is 0.8 percent, which is much less than the industry’s average asset management ratio of 13.0 and also their rivals which is at 1.8. Likewise, the ratio of cash of McDonalds is at 9.7, which is also is much smaller than the industry average ration of cash at 32.2. Despite these low ratios, McDonald’s has a asset turnover of 102.0 which gives the company an advantage.
In conclusion, to answer the research question “To what extend has McDonald’s green movement in Singapore enabled the company to gain a Sustainable Competitive Advantage?” this extended essay evidently shows the extent of its effectiveness by investigating the benefits of the Green Movement Strategy as a Corporate Social Competitive Advantage and its financial position. In terms of its Corporate Social image wise, the Green Movement has proved to be a great way to improve McDonald’s corporate image and provide the corporation with a sustainable competitive advantage. In addition to the fact that it has earned the corporation the BCA Green Mark Award, it has also shown that the Green Movement is a successful strategy to improve McDonald’s Corporate Social and environmental image.
In terms of its Financial Position, the implementation of the Green Movement has also made an obvious and significant rise in its sales revenue, and net income. However, since “the current economic environment has increased consumer focus on value, heightening pricing pressures across the industry, which could affect ability to continue to grow sales despite the strength of brand and value proposition” (Pulitina, 2010) and looking at the analysis of the ratios, McDonald’s is seen to be able to benefit from the Green Movement in the long run, however the strategy is actually eating in to the corporation’s profit looking at the short run basis.
McDonald’s should modify its operating strategies in order to achieve the full effect of the Green Movement strategy. In addition, since a big part behind the company’s strategy is “being better, not just bigger,” McDonald’s should devote more equity and value to not only developing new markets, but also strengthening its position in the current markets. The main issue that McDonald’s is facing is the ability to increase market share without decreasing their sales and operating income over both the short term and long term run.
Therefore, McDonald’s should focus more of their attention on improving existing restaurants rather than opening new ones. Likewise, McDonald’s should place greater emphasis on sales rather profits and prices of its products. Generally, while there are some obvious drawbacks in the Green Movement strategy, it is still a regarded as a simple and ethical solution to improve and gain competitive advantage especially for companies whom seek a sustainable competitive advantage for their businesses as well as a boast in corporate social image.