McDonalds Financial Statement and Financial Ratios Analysis

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 provide a broad definition of an income statement and explain 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.

McDonald’s 2023 Summary Income Statement
Column1	2023	2022	2021	2020	2019
Revenues	25,494	23,183	23,223	19,207	21,364
COGS	3,039	2,723	3,097	2,564	2,980
Gross Profit	22,455	20,460	20,126	16,643	18,384
SG&A	2,435	2,492	2,378	2,245	1,966
Depreciation	1,978	1,871	1,868	1,751	1,617
R & D	-	-	-	-	-
Other	-	-	-	-	-
Total Operating Expenses	13,847	13,812	12,867	11,884	12,007
EBIT	11,647	9,371	10,356	7,324	9,069
Other Income	-	-	-	-	-
Interest Expense	1,361	1,207	1,186	1,218	1,121
EBT	10,522	7,825	9,128	6,140	8,018
Taxes	2,053	1,648	1,583	1,410	1,992
Net Income	8,469	6,177	7,545	4,730	6,025

 

Revenue Growth:

They analyzed McDonald’s revenue from 2018 to 2022, which 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

For several compelling reasons, analyzing McDonald’s income statement is paramount in financial analysis.  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 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 will analyze McDonald’s balance sheet line items.

McDonald’s 2023 Summary Balance Sheet
Column1	2023	2022	2021	2020	2019
Cash	4,579	2,584	4,709	3,449	898
Short Term Investment	-	-	-	-	-
Account Receivable	2,488	2,115	1,872	2,110	2,224
Inventory	53	52	56	51	50
Other	-	-	-	-	-
Current Assets	7,986	5,424	7,149	6,243	3,557
Net PPE	24,908	23,774	24,721	24,958	24,160
Goodwill			2,783	2,773	2,677
Other				-	-
Total Assets	56,147	50,436	53,854	52,626	47,510
Accounts Payable	1,103	980	1,007	741	988
Accrued Expense	1,434	1,237	1,347	1,138	1,035
Accrued Taxes	973	530	597	968	578
Notes Payable	-	-	-		-
LT Debt - Current	-	-	-	2,243	59
Other	-	-	-	-	-
Total Current Liabilities	6,859	3,802	4,020	6,181	3,621
LT Debt	37,153	35,904	35,623	35,196	34,118
Other	-	-	-	-	-
Total Liabilities	60,854	56,439	58,455	44,802	39,300
Common Stock	8,910	8,564	8,248	7,903	7,653
Treasury	(74,640)	(71,624)	(67,810)	(67,066)	(66,328)
Retained Earnings	63,480	59,544	57,535	53,908	52,930
Other	-	-	-	-	-
Total Equity	(4,707)	(6,003)	(4,601)	(7,824)	(8,210)
Total Equity & Liability	56,147	50,436	53,854	52,626	47,510

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 significantly boost its liquidity during the pandemic.  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 financial analysis component that is of 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.  By examining the composition of assets and liabilities, analysts can determine the company’s ability to meet its short-term obligations and overall financial stability.  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 asset use.  However, in 2019, it decreased to 0.45, indicating a reduction in efficiency.  In 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 helps 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.  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.