Team 1:Chris AthensBen BakerChris BolingerJosh CarverJordan GuentherJeff WardMcDonalds

History1948 McDonald brothers open the first McDonalds and names Speedee as their company image.1954 Ray Krock, a multimixer salesman becomes the franchising agent.1955- Ray Kroc opens the Des Plaines restaurant. The 1st days revenues - $366.121957 Ray Kroc hands out free hamburgers to Salvation Army guests1958 Sales grow 151%1961 Ray Kroc buyout the McDonalds brothers for $2.7 million1963 Ronald McDonald is introduced1965 - McDonalds goes public with the companys first offering on the stock exchange for $22.50 per share.First television commercial is airedhttp://www.youtube.com/watch?v=krXP_TUZqsk

1966 McDonalds stocks split for the first time.1967 - Big Mac inventedMcDonalds in Canada and Puerto Rico open1971 - Makadonaldo (Japan)1973 - Egg McMuffin invented1974 - Ronald McDonald House opened1979 - Happy Meals introduced1979-present - Continued growth

History

ProblemsCustomer ServiceMcDonalds is currently ranked last amongst its top competitors in the FFHR subsector.#1 Burger King#2 Wendys#3 McDonalds

This may not sound bad at first glance, but when you look at the fact that these three competitors hold 73% of the FFHR market, it puts it into perspective.

Problems (cont.)Health Issues

SWOT Analysis - StrengthsWorldwide Brand Recognition41% of all fast-food visits are for hamburgersMcDonalds has 44% of US fast-food hamburger businessOver 70% of the restaurants are independently ownedRanked number one in Fortune magazines 2008 list of most admired food service companies. Overseas marketOver 31,000 restaurants in over 120 countries.

Quality measures through supply chain managementEncourage new ideas from withinBig MacEgg McMuffinLarge available amounts of capital for future restaurants due to holding a limited number of corporate owned restaurants.Economies of scaleSWOT Analysis Strengths (cont)

SWOT Analysis - WeaknessesWeak product developmentPoor relationships with franchiseesFluctuations in profit (which has been improved in 2008 after the franchising of many corporate owned restaurants)

Chart1

185942278.50.123

19117.32602.20.136

20895.23544.20.17

22786.62395.10.105

2352243130.179

Revenues

Net Income

Profit Margin

Year

US Millions

Profit Margin (%)

Revenues & Profitability: McDonald's Corporation

Sheet1

20042005200620072008

Revenues18594.0019117.3020895.2022786.6023522.00

Net Income2278.502602.203544.202395.104313.00

Profit Margin12.30%13.60%17.00%10.50%17.90%

Total Assets27837.5029988.8028974.5029391.7028462.00

Total Liabilities13636.0014842.7013516.2014111.9015079.00

Employees42800447000465000390000400000

Sheet1

&A

Page &P

Revenues

Net Income

Profit Margin

Year

US Millions

Profit Margin (%)

Revenues & Profitability: McDonald's Corporation

Sheet2

Mcdonald's44

Burger King14

Wendy's13

Sonic6

Jack in the Box4

Hardee's3

White Caste1

Other15

100

Sheet2

FFHR Market Shares

Sheet3

Burger40.1

Pizza17.4

Sandwich10.3

Chicken7.7

Mexican6.4

Other17.8

Sheet3

2000-2007 Visits to QSR

International expansion through continued franchise opportunitiesOnly serving 1% of the worlds populationGrowth in the beverage industry (by 2011 - $71.4 billion in sales with 70.8% being coffee drinks)Introduction of local offerings (i.e. Tech Burger with special condiments and toppings)SWOT Analysis - Opportunities

Mature industryStrength of competitionMore health-conscious consumersChanging demographicsFluctuation of foreign exchange ratesIncreasing commodity and fuel pricesSWOT Analysis - Threats

CompetitionTopBurger King 14%Wendys 13%Other strong competitorsSonic 6%Jack in the Box 4%Hardees 3%White Castle 1%

Marketing TechniquesProduct ImageCustomers associate with the brandDomesticGlobal

Marketing Techniques (cont.)Original symbol SpeedeeGolden ArchesBuilding structure and colorsLocal advertising

SlogansYour kind of place (1967)You deserve a break today (1971)We do it all for you (1965)Have you had your break today (1995)Im lovin it (2003)

Marketing MixFive PsMarketing and CommunicationsResponsibilityMcSpirit NightsCommercialsAtmosphere

Global MarketingNational Marketing CampaignMarketing-North AmericaHong KongFranceAustraliaCatering to local needs across seas

Management In McDonaldsRay KrocThe quality of a leader is reflected in the standards they set for themselvesWe take the hamburger business more seriously than anyone elseYou're only as good as the people you hireIf there is time to lean there is time to clean

Hamburger UniversityMcDonalds Center of Training ExcellenceCreated by Fred Turner and Ray Kroc in 1961All levels of managers in the McDonalds family go through training at this facility. At McDonalds, our training mission is to be the best talent developer of people with the most committed individuals to Quality, Service, Cleanliness and Value (QSC&V) in the world. Our strong commitment to the training and development of our people has resulted in many firsts and honors.

Management ContinuedHamburger University has given emphasis to consistent restaurant operations procedures, service, quality and cleanliness.Because of its success H.U. has become the global center of excellence for McDonalds operations training and leadership development.With this training it creates unity for the CEO to the local store manager, they all have the same goals in mind which is.

Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile. And by doing this we are our customers' favorite place and way to eat."

Financial HealthWe looked at 4 major aspects of financial health of McDonalds and their competitorsLiquidityLeverageRates of ReturnStock Market RatiosWe also took Altmans Z-Score into account to see how healthy these companies were during the recession.

LiquidityThe ability to meet current obligationsWe took into account the Current Ratio and the Quick Ratio.

Current Ratio = Current Assets/Current Liabilities.

Quick Ratio = (cash + marketable securities + net receivables) / Current Liabilities

Current Ratio in 2008

Quick Ratio for 2008*If the current ratio is above 1, and the quick ratio is below 1, then a manager may need to look at the valuation of inventory or the inventory turnover.

Leverage The ratios between debt and equity which provides information about bankruptcy.We will look at the Debt-to Asset Ratio and the Debt-to-Equity RatioDebt-to-Asset = Total Liabilities/Total AssetsDebt-to-Equity = Long-term Debt/Shareholders Equity

Meaning of RatiosDebt-to-Asset shows whether assets are financed through equity, value under 1, or financed through debt, a value above 1.Above 1, might mean trouble if the company is under pressure.Debt-to-Equity shows whether a company can generate new funds from the capital market.A higher ratio means a company is thought to have smaller new-financing capacity and will have trouble finding future financing funding.

Debt-to-Asset for 2008

Debt-to-Equity for 2008SONC had a -11.24 ratio largely due a buy back of treasury stock, because they thought their stock was undervalued.

Altmans Z-ScoreThe score analyzes the future success or failure of a company.Z-Score =A x 3.3 + B x 0.99 + C x 0.6 + D x 1.2 + E x 1.4 A= EBIT/Total AssetsB= Net Sales/Total AssetsC= Market Value of Equity/Total LiabilitiesD= Working Capital/Total AssetsE= Retained Earnings/Total Assets

Evaluation of ScoreScore < 1.8 indicates bankruptcy is highScore > 1.8 but < 2.7 bankruptcy is fairScore >2.7 but < 3.0 bankruptcy is possible, but not likely,Score > 3.0 indicates bankruptcy is low and company is in good health.

McDonalds Score was 3.04 for 2008.

Return on AssestsReturn on assets (ROA) is an indicator of how profitable a company is relative to its total assets.ROA gives companies and organizations an ideaas to how efficient theirmanagement isat using their assets to create earnings. In order to calculate return on assets, you must divide a company's annual earnings by its total assets; ROA is displayed as a percentage.

Return on AssetsROAtells you what earnings were produced from invested capital or assets. ROA for public companies can vary substantially and will be highly dependent on the industry. This is why when using ROA as a comparative measure,it is best to compare it againsta company'sprevious ROA numbers or the ROA of a similar company

Return on Assets2008 ROA5 year AverageMacDonalds15.2%10.5%Sonic10.6%10.3%Burger King 7.10%3.20%Jack in the Box 7.60%7.40%Wendys -10.3% -4.50%

Return on AssetsThis shows that if MacDonalds net income was generated from their total value of assets, the return would be right around 15 cents per dollar. It is also a great indicator of how efficient MacDonalds is at using their assets to generate income. On the other side however, Wendys would show a lose of 10 cents on the dollar if their net income is based off their total value of assets. Sonic would have a gain of 10 cents on the dollar while both Burger King and Jack in the Box would have 7 cents gain on the dollar.

Return on EquityThe amount of net incomereturnedas a percentageof shareholders equity.Return on equitymeasures a corporation's profitabilityby showing how muchprofit a company makeswith the money shareholders have invested. ROE is expressed as a percentage and calculated by dividing net income by shareholders' equity. ROE is usefulfor comparing the profitability of a company to that of other firms in the same industry.

Return on EquityThese numbers tell us how much profit is being produced from money that investors have provided to these companies. 15-20% is usually considered exceptional. For every dollar of income 20 cents can be credited to the investors capital. This ratio is often considered the most important. The main goal of any company is to maximize shareholder wealth. This ratio tells you and your investors how much money you are making off their money.

Return on Equity2008 ROE5 year AverageMacDonalds 32.2%20.6%Sonic 44.1%36.3%Burger King 20.9%13.8%Jack in the Box 23.0%19.3%Wendys -55.9% -41.3%

Return on EquityAccording to the information, Sonic and MacDonalds are leading the way by making 44 cents and 32 cents for every investors dollar respectively. Jack in the box makes roughly 23 cents per dollar while Burger King makes 20 cents. All four of these are considered to be outstanding. Wendys is not fairing very well. For every dollar an investor puts into Wendys, they are losing almost 56 cents in return. That is not what a company wants to see if they are looking for potential investors.

Stock Market RatiosThe three most common ratios used are:

Price-Earnings Ratio (P/E Ratio)Earnings per Share (EPS)Dividend-Yield Ratio

Price-Earnings Ratio (P/E)The P/E ratio (price to earnings) of a stock is a measure of the price paid for a specific share, which is relative to the annual net income or profit which is earned by the company per share

P/E ratios are segmented between high and lowA higher P/E ratio means that investors are paying more money for each unit of net incomeTherefore, the stock is more expensive if compared to another stock with a lower P/E ratio

McDonalds P/E RatioMcDonalds has a current P/E ratio of 15.1. However, the companys P/E ratio for fiscal year end 2008 was 28.0.

either the stock is overvalued or the company's earnings have increased since the last earnings figure was published

Sonic Co. P/E RatioSonic Corporation has a current P/E ratio of 12.2. The companys P/E ratio for fiscal year 2008 was 22.5

An end of year P/E ratio between 17-25 will usually indicate a growth stock, with earnings expected to increase substantially in the near future

Burger King & Jack in the Boxs P/E RatiosThe two companys current P/E ratios are 17.3 and 13.5 and their end of year ratios were 22.1 and 21.2 respectively

Investors are hoping that both of these stocks will be growth stocks that will increase substantially in the near future

Wendys/Arbys P/E RatiosAt the end of fiscal year 2008, this companys P/E ratio was 37.3

A company whose shares have an extremely high P/E ratio have high expected future growth in overall earnings, or the stock may be subject to a speculative bubble

These stocks have the potential to trade in high volumes at prices that are considerably different than the intrinsic values

Earnings Per Share (EPS)Earnings per share are the earnings which are returned on the initial investment amount. This is calculated by:

EPS = (net income - preferred dividends) /common shares outstanding

Fast Food Industrys EPS

CompanyDateActual EPSLast AVG EstimateMcDonaldsDec. 20083.763.63SonicAug. 20080.970.98Burger KingJun. 20081.381.35Wendys/ArbysDec. 2008-0.750.13Jack in the BoxSep. 20082.012.00

What Does This Mean?McDonalds has reported an average annual increase in its EPS since 1998

This makes McDonalds more appealing to an investor because the basis of the EPS ratio is the earnings which are returned on the initial investment

McDonalds EPS Over the Last Decade

Dividend-Yield RatioThe dividend yield on a company stock is the companys annual dividend divided by price per share

CompanyPrice/ShareAnnual DividendDividend YieldMcDonalds$54.82$2.003.65%SonicNANANABurger King$22.68$0.251.10%Wendys/Arbys$5.30$0.061.13%Jack in the BoxNANANA

How Does This Affect McDonalds?McDonalds has been consistently increasing its dividends for the past thirty yearsFrom 1998, up until 2007, this dividend growth stock has delivered an annual average total return of 11% to its shareholdersOver the past ten years, the annual dividend payments have increased by an average of almost 25% annually, which is much higher than the before mentioned growth in EPS

This 25% growth in dividends translates into McDonalds dividend payment doubling nearly every three years

Dupre Elementary 1st grade classIf you could eat at McDonalds or Burger King for lunch today, which one would you pick? 94% responded MCDONALDS with thunderous cheers6% responded Burger King without much enthusiasm

Get the kidsand the parents will follow.

Past StrategiesProduct Development Hits: Fries, Happy Meal, Big Mac, Egg McMuffin, Salads, Apple Slices, Yogurt Parfaits, & Promotions Misses: McPizza, Fajita, Carrot Sticks, McLean, and the Arch Deluxe

Past Strategies (cont.)Market DevelopmentHit: International growthMiss: Over-expansion in USAlternative locations Forward IntegrationDistribution through franchisees with control over store presentation, menu items

New StrategiesProduct Development: Focus on core businessQuality and taste issuesFood delivery methodsFamily Value MealThursdays $1.59 Happy Meal

New Strategies (cont.)Redevelop Franchisee RelationshipsMarket Penetration and DevelopmentContinue International expansionCost ReductionsHome office cost reductionsFranchising corporate owned restaurants

RecommendationsImprovements in:Customer ServiceFocus on team, not individualsReward the behavior that you wantTraining/CompensationTraining in customer service, speed and accuracyIncrease pay to attract more qualified applicantsTechnologyImprovement of order verification system Continued Growth of International Market

Thank you from Team 1

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