Macdonald financial information Essay
• ROCE have been consistent in 2004 and 2005 which increases shareholders and lenders confidence however the confidence built when it reached 10. 2%. • Operating margin have gone up by 3. 5% from 39% in 2004 to 42. 5% • Revenue growth has been consistent moving up and down but has dramatically increased by 10% in 2005. • Price Earning ratio has gone up from 19. 58 to 29. 67 which indicate higher returns for shareholders. Revenues have been growing at considerable rate even though it has dropped in growth which could be due to increasing competition.
Despite of falling revenue the operating margin have gone up significantly but at the same time ROCE have increased dramatically this is because increasing revenue as well as investments in acquiring new businesses without injecting more cash. On liquidity, the current ratio indicates that the firm was not financially stable in 2005 and 2004. This ratio was 2. 2:1 in year 2005 and 1. 8:1 for 2004. This means that for every $2. 2, 1. 8 of current assets there are $1 of current liabilities for years 2005 and 2004 respectively. The recommended ratio is 2:1 i. e.
current assets should be twice as
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1 times in 2005which is the highest turnover meaning that the average stock was turned 53. 1 times or held in store for only 7 days before being sold while in year 2004 it was 48 times or 8 days. The rate at which the company convert debtors into cash are increasing over the two years is at 19 and 17 days for years 2005 and 2005 respectively. As shown by the account receivable turnover, the number of days was turned to cash i. e. the debtors payments frequency was 19. 56 times in 2005 and 22. 06 times in 2004. It means that the efficiency with which the firm is utilizing its debtors to generate cash is high and it does slightly fluctuate.
Although accounts receivable shows a constant performance with a slight change, the profits are low. Even though the turnover rates are low, these were above the industrial average of 30 days. The assets turnover was 35% times for 2005 and 53. 1% for year 2004. It analysis measures the turnover of assets of most businesses that generate high returns create substantial assets for each dollar. It measures how a dollar invested in assets is returned. In this case every dollar invested the company gets 0. 6183 and 0. 5776 times of assets. The working capital turnover was 35 times for 2005 and 53.
2 times for year 2004. It analysis measures the working capital is used generate high returns create substantial assets for each dollar. There is also an improvement of the debt to capital employed ratio it changes from 43% to 45% from 2004 to 2005 respectively The debt ratio is an indicator of the percentage of assets that have been financed through borrowed capital. It means that in 2005 45% of the total assets were financed through debt and 2004 they were 43% respectively. It means the firm might be financing its assets using external sources. While debt to equity ratio was 28. 6:1 and 28.
3:1 in years 2005 and 2004 respectively. It measures how much of the debt is available from equity. In this case for every 28. 6 dollars of debtors there is only 1 dollar from shareholders. This is very dangerous for a company. The interest coverage ratio has also improved from negative to positive. On profitability, it can be noted that the profitability of the company is improving over time. This is shown by the Gross profit margin ratio, the Return on Assets and return on equity ratio. In 2005, the ratio increased to 17. 3% from 17% in 2004. The net Return on Assets ratio also improved to 13% in 2005 from 8.
4% in 2006. While Return on equity followed suit. DuPont analysis: In a DuPont analysis, the expression for ROE is broken up into three parts – profit margin, asset turnover and equity multiplier. The profit margin measures the operating efficiency of the firm concerned, asset turnover measures the asset use efficiency and the equity multiplier throws light on the financial leverage of the company under analysis. This identity helps one to understand where the superior or inferior return comes from. The rate changed from 14. 34% to 15%. 4. 1. 7 Marketing
Macdonald exceptional growth have been determined to its well known brand which has been created by using different marketing strategies, targeting all groups and serving all communities with its products and services. Critical Success Factors Macdonald enjoys a number of favorable factors. There are disadvantages as well. The long term success of the company entails consolidation of those favorable factors while focusing upon and overcoming the weaknesses. The company must continue with the following that ensured its success in the past. -Strong market position -Robust financial performance
-Product development -Strong focus on innovation -Mergers and acquisitions wherever relevant The company has done well to establish the permanent goal of 20 percent growth, and all its activities must be geared to this end through thick and thin. The company can make the best use of available opportunities to further its advantages. These are: –New product launches -Aging population in the U. S and world over However, it is critical to success that the company addresses some of the weaknesses that can be fixed with a focused approach. As of now these weaknesses have surfaced in the following forms:
– -Geographic concentration -Low operational efficiency Apart from these weaknesses the company also needs to handle the threats that can cause considerable problem for the company. These are: -Industry consolidation: The U. S fast food industry has undergone dramatic consolidation in the last few years. Larger players have attempted to increase market share and product portfolios through mergers and acquisitions. This could lead to a price war, thereby reducing the operational cost of the company. It could also reduce the company’s share in the global market.
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