McDonalds Financial Statement and Financial Ratios Analysis

McDonalds Financial Statements and Financial Ratios Analyzed

Hey All,

Thanks for visiting my McDonald's Financial Report page. This page will provide preliminary information about McDonald's financial performance and some historical track records and trends. 

I offer two reports for a more detailed examination of McDonald's financial performance: "A Beginner's Guide to McDonald's 2022 Financial Analysis" and "McDonald's Financial Report with AI Insights by Paul Borosky, MBA."  Both reports are written by myself, Paul Borosky, MBA., Doctoral Candidate, and published author, and include:

  • Summarized income statements for the last 5 years.
  • Summarized balance sheets for the last 5 years.
  • Five years’ 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.
  • Professional financial analysis tips are provided in each section to help YOU conduct your OWN financial analysis!
  • Each section includes an “in other words” segment.  This is where I use plain English to explain concepts.

 

For a MORE in-depth review of the company's financial statements and ratios, buy my "McDonald's Financial Report."  The financial report includes all aspects of my "Beginner's Guide" plus a whole lot more...

  • Professional financial analysis using Artificial Intelligence of important income statements, balance sheets, and financial ratio trends.
  • "Letter Grade" is assigned to most financial statement line items and financial ratios to help you better understand their overall trends for the last 5 years.
  • Overall financial analysis summary for the company.

Enjoy the preliminary information, and for a more detailed analysis, buy the financial report!

Sincerely,

Paul, MBA.

PDF/Downloadable Version

McDonald's 2022 - Beginner's Guide to Financial Analysis

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McDonalds 2022 Financial Report by Paul Borosky, MBA.

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Sample Financial Report

Sample Financial Report by Paul Borosky, MBA.
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McDonald's Company Summary

McDonald's is a global leader in the fast-food industry, renowned for its unparalleled brand recognition and expansive network. Founded in 1940 in San Bernardino, California, the company now operates over 39,000 restaurants in more than 100 countries, serving approximately 69 million customers daily. McDonald's menu features a variety of items, including the iconic Big Mac, Happy Meals, and a range of beverages, along with localized cuisine in various countries. The company primarily operates through franchisees, contributing significantly to its global reach. McDonald's has also embraced digital innovation, offering mobile ordering and home delivery services. Its commitment to sustainability, evident through initiatives like renewable energy usage and responsible sourcing, further strengthens its position. Through consistent quality, strategic growth, and adaptability, McDonald's has solidified its status as a trailblazer in the fast-food industry (7/23).

McDonald's Financial Report Sources

"McDonald's 2022 Financial Statements and Financial Ratios: Defined, Discussed, and Analyzed for 5 Years” was written by Paul Borosky, MBA., Doctoral Candidate and owner of Quality Business Plan.  In this summarized book, the author researched McDonald's 10k, McDonald's 2019 10k annual report, McDonald's 2016 10k annual report, McDonald's 2021 10k annual report, and McDonald's 2019 10k annual report as the basis for information gathering.  Once all of McDonald's 10k annual statements were collected, the author then inserted McDonald's income statement information and McDonald's balance sheet information into a customized financial template. 

 

Section 1: McDonald's Income Statement Analyzed

In this section, I walk through a broad definition of what an income statement is and why it is essential.  I then discuss and define income statement line items, such as revenues, gross profits, etc., in detail.  After each line item is defined and discussed, I finally offer a summary analysis of McDonald's significant income statement line item trends from 2018 to 2023, in most cases.

McDonald's 2022 Summary Income Statement

Column1 2022 2021 2020 2019 2018
Revenues                    23,183                    23,223                    19,207                    21,364                      21,257
COGS                      2,723                      3,097                      2,564                      2,980                        3,154
Gross Profit                    20,460                    20,126                    16,643                    18,384                      17,871
 
SG&A                      2,492                      2,378                      2,245                      1,966                        1,985
Depreciation                      1,871                      1,868                      1,751                      1,617                        1,482
R & D                            -                            -                            -                            -                             -
Other                            -                            -                            -                            -                             -
Total Operating Expenses                    13,812                    12,867                    11,884                    12,007                      12,203
EBIT                      9,371                    10,356                      7,324                      9,069                        8,823
Other Income                            -                            -                            -                            -                             -
Interest Expense                      1,207                      1,186                      1,218                      1,121                           981
EBT                      7,825                      9,128                      6,140                      8,018                        7,816
Taxes                      1,648                      1,583                      1,410                      1,992                        1,892
Net Income                     6,177                     7,545                     4,730                     6,025                      5,924

 

Revenue Growth:

Analyzing McDonald's revenue from 2018 to 2022 shows fluctuating growth patterns. In 2018, the revenue was $21,257 million, with a slight increase to $21,364 million in 2019, indicating a growth of 0.5%. However, 2020 saw a significant decline, with revenues dropping to $19,207 million, a 10.1% decrease, likely impacted by the COVID-19 pandemic. The company rebounded strongly in 2021, with revenues climbing to $23,223 million, marking a substantial 20.9% growth. In 2022, McDonald's revenues slightly decreased to $23,183 million, a marginal decline of 0.2%.

Analyst Grade: B-

Importance of McDonald's Income Statement Analysis for Financial Analysis

Analyzing McDonald's income statement is paramount in financial analysis for several compelling reasons. The income statement offers a comprehensive view of the company's financial performance over a specific period, typically a quarter or a year, by detailing its revenues, expenses, and profitability.

First and foremost, it allows financial analysts to assess McDonald's ability to generate revenue, manage costs, and ultimately achieve profitability. Analysts can gauge the company's operational efficiency and effectiveness by scrutinizing items such as sales, operating expenses, and net income.

Furthermore, the income statement aids in identifying trends and patterns in McDonald's revenue streams and expense categories, shedding light on how well the company adapts to changing market conditions and consumer preferences.

Moreover, it is instrumental in calculating key financial ratios like the gross and net profit margins, providing valuable insights into McDonald's profitability and cost management strategies.

Overall, the income statement serves as a cornerstone for informed decision-making, enabling stakeholders to evaluate McDonald's financial health, assess its competitive position, and formulate effective strategies for future growth and sustainability in the highly competitive fast-food industry.

Section 2: McDonald's Balance Sheet Analyzed

I again go through each vital line item from the balance sheet for McDonald's balance sheet.  In reviewing each line item, I will define McDonald's balance sheet line items, such as cash, property, plant and equipment, and liabilities.  Next, I offer an analysis of McDonald's balance sheet line item.

McDonald's 2022 Summary Balance Sheet

Column1 2022 2021 2020 2019 2018
Cash                        2,584                    4,709                    3,449                       898                       866
Short Term Investment                              -                         -                         -                         -                         -
Account Receivable                        2,115                    1,872                    2,110                    2,224                    2,442
Inventory                             52                         56                         51                         50                         51
Other                              -                         -                         -                         -                         -
Current Assets                       5,424                  7,149                  6,243                  3,557                  4,053
Net PPE                      23,774                  24,721                  24,958                  24,160                  22,843
Goodwill                    2,783                    2,773                    2,677                    2,331
Other                         -                         -                         -
Total Assets                    50,436                53,854                52,626                47,510                32,811
Accounts Payable                           980                    1,007                       741                       988                    1,208
Accrued Expense                        1,237                    1,347                    1,138                    1,035                    1,284
Accrued Taxes                           530                       597                       968                       578                       481
Notes Payable                              -                         -                         -                         -
LT Debt - Current                              -                         -                    2,243                         59                         -
Other                              -                         -                         -                         -                         -
Total Current Liabilities                        3,802                    4,020                    6,181                    3,621                    2,974
LT Debt                      35,904                  35,623                  35,196                  34,118                  31,075
Other                              -                         -                         -                         -                         -
Total Liabilities                    56,439                58,455                44,802                39,300                26,553
Common Stock                        8,564                    8,248                    7,903                    7,653                    7,393
Treasury                    (71,624)                (67,810)                (67,066)                (66,328)                (61,529)
Retained Earnings                      59,544                  57,535                  53,908                  52,930                  50,487
Other                              -                         -                         -                         -                         -
Total Equity                     (6,003)                 (4,601)                 (7,824)                 (8,210)                 (6,258)
Total Equity & Liability                    50,436                53,854                52,626                47,510                32,811

Cash:  McDonald's cash as a percentage of sales from 2018 to 2022 shows significant changes. In 2018 and 2019, the cash percentage of sales was relatively low at 4.1% and 4.2%, respectively, with cash balances of $866 million and $898 million. There was a substantial increase in 2020, with cash representing 18.0% of sales ($3,449 million), likely due to increased liquidity measures in response to the COVID-19 pandemic. This trend continued in 2021, with cash comprising an even higher 20.3% of sales ($4,709 million). However, in 2022, there was a notable decrease to 11.1% of sales, with a cash balance of $2,584 million.

The cash as a percentage of total assets also shows a similar trend, increasing from 2.6% in 2018 to 8.7% in 2021 before dropping to 5.1% in 2022.

Grade: A- - This analysis highlights McDonald's ability to boost its liquidity during the pandemic significantly. The decrease in 2022 suggests a normalization or strategic use of the accumulated cash reserves.

Importance of Coca-Cola's Balance Sheet for Financial Analysis

McDonald's balance sheet analysis is a fundamental component of financial analysis, holding significant importance for various reasons. The balance sheet provides a snapshot of the company's financial position at a specific time, offering a detailed breakdown of its assets, liabilities, and shareholders' equity.

First, it allows financial analysts to assess McDonald's liquidity and solvency. Analysts can determine the company's ability to meet its short-term obligations and overall financial stability by examining the composition of assets and liabilities. For example, if McDonald's has more current assets than current liabilities, it suggests a healthier short-term financial position.

Next, the balance sheet aids in evaluating McDonald's capital structure, revealing the proportion of debt and equity financing. This information is crucial for assessing the company's risk profile and long-term financial stability.

Finally, changes in the balance sheet over time can indicate trends in McDonald's financial health, such as increasing or decreasing debt levels or shifts in asset composition.

In summary, McDonald's balance sheet analysis is essential for understanding the company's financial strength, risk exposure, and capacity to weather economic challenges, making it a critical tool in financial analysis.

Section 3: McDonald's Financial Ratio Summary

For this section, I have chosen several different financial ratios to review for McDonald's Inc.  In reviewing McDonald’s financial ratios, I first define the financial ratio.  Next, I supply the financial formula for calculating the specific ratio.  Finally, I offer a brief analysis of McDonald's Important Financial ratios. 

Sample: McDonald's Total Asset Turnover

The total asset turnover ratio for McDonald's from 2018 to 2022 indicates how efficiently the company uses its assets to generate sales. In 2018, the ratio was relatively high at 0.65, suggesting effective use of assets. However, in 2019, it decreased to 0.45, indicating a reduction in efficiency. 2020, the ratio decreased to 0.36, likely impacted by the COVID-19 pandemic. There was a slight improvement in 2021 to 0.43; in 2022, the ratio increased again to 0.46.

Grade: C+ - The fluctuation in the total asset turnover ratio over these years suggests varying levels of asset utilization efficiency at McDonald's. Given the pandemic, the decrease in 2020 is understandable, but the recovery in 2021 and 2022 indicates efforts to improve efficiency. However, the ratio is still lower than the 2018 level, indicating room for improvement in asset utilization.

Importance of McDonald's Financial Ratios for Financial Analysis

The utilization of financial ratios in analyzing McDonald's financial performance is paramount for several compelling reasons. These ratios distill complex financial information into digestible metrics that offer critical insights into the company's operations and overall financial health.

Financial ratios allow analysts to assess McDonald's profitability, efficiency, liquidity, and solvency. Metrics such as the return on assets (ROA), return on equity (ROE), and gross profit margin help gauge how effectively McDonald's generates profits and manages its resources. These ratios enable meaningful comparisons with industry peers and historical data, providing context and revealing trends. By benchmarking against competitors, analysts can identify McDonald's relative strengths and areas for improvement.

Finally, financial ratios assist in investment decision-making by assessing the company's risk profile and ability to meet short-term and long-term obligations. Ratios like the debt-to-equity and interest coverage ratios offer insights into McDonald's financial stability.

In conclusion, McDonald's financial ratios are indispensable for investors, analysts, and stakeholders. They guide informed decision-making, assess the company's financial well-being, and help understand its competitive position in the dynamic and highly competitive fast-food industry.