Financial Performance Of An Organization Over A Three Year Period: McDonalds - Dissertation Example

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An Analysis And Evaluation Of The Business And Financial Performance Of An Organization Over A Three Year Period: McDonald’s Course: Date: TABLE OF CONTENTS Introduction……………………………………………...…………………3 PART 1: Project Objectives and Overall Research Approach………….......3 PART 2: Information Collection and Accounting (Business) Techniques….7 PART 3: Results, analysis, Recommendation and Conclusion…………….12 Presentation Results……………………………………………...12 Discussion of the Results………………………………………...23 Limitation of the result…………………………………………..30 Analysis and Evaluation of Results………………………………30 Explanation of the Significant Findings……………………….....32 Conclusion………………………………………………………..33 Evaluation of the Objectives……………………………………...34 Review of the Research Questions………………………………..35 Recommendation of Specifics Courses…………………………...37 Reference List……………………………………………………………....38 Introduction This study is about the evaluation and analysis of the financial and business performance of the McDonald Corporation form 2010 to 2012. In the business performance, this study will explore the strength of the organization with a focus on its profitability and cash flow. In the evaluation of financial performance, we will be interested in how the organization utilizes and manages its resources in the daily operations. This evaluation will be very vital for the McDonald’s Corporation because it will enable the administration to identify the risks of losses and the necessary reforms necessary for improvement of both the business and financial performance. 1. PART 1: Project Objectives and Overall Research Approach 1.1. Reason for Choosing This Topic This topic is essential for this particular study because it focuses on the financial aspects of the McDonald’s Corporation. The financial aspects articulate the main purpose of the organization as a profit making, since McDonald’s Corporation focuses on global expansion agenda and consumer confidence retention. The second reason why this topic is essential is because the global financial depression affects literally every business enterprise in the world, and the United Kingdom Retail market is not an exception. The topic will enable the organization to make sound decisions for the future. The topic of financial performance is based on the results that are declared at the end of every year, hence they show the degree to which the companies meet or fail to meet their objectives at the end of every year (Accounting Education Change Commission, 1993). 1.2. Reason For Choosing McDonald’s UK This project has an objective to investigate and analyze the financial performance of the McDonald's Corporation, whose head quarter is in the United States of America, and has very strong business potentials in the United Kingdom. This project intends to concentrate majorly on the financial performance of the Subsidiaries of McDonald Retain Chains in the United Kingdom. The reason for this choice is the variation of performances of the company based on the fluctuation of economic positions in the European Market as well as the varying financial results of the McDonald’s which comes out every quarter of the financial year. For example, in the first quarter of 2013, the international sales volume of the McDonald reduced by 1 per cent. In the same period, the collective revenue rose by 1 percent in the United Kingdom but the collective operating expenses decreased by 1.2 percent. In the stock market, the diluted for every share rose by 2 percent to 1.05 GB Pounds per share. This raised about 1.15 GB Pounds in return to be shared as Dividends among the shareholders. The sharing could take place in form of dividends and repurchase of share. McDonald’s Chain of Business in the UK has demonstrated very essential elements of financial performance, which are of great interest to this project. The research has an ultimate objective to explore and analyze the financial performance of the McDonald’s (Bhattacharyya, 2011). 1.3. Project Objectives In the entire work, this study holds three main objectives that it intends to focus on and fulfill. The objectives are listed below: i. To analyze the measure of financial and business performance for 2010, 2011 and 2012. As it uses the information, it will be possible to measure its net profit after taxation, share prices in the market, working capital or capital debt and fixed asset values. ii. To ascertain whether the market price of the shares has been increasing or reducing during the three years. This study will confirm whether the prices and the variation are normal or exceptional by doing a comparison of this with the share prices of Burger King Corporation in the UK. This will be very essential because the McDonald’s Corporation produces consumer response reports to the board of administration that directly reports to the shareholders. The shareholders will be interested in the financial report and its analysis in order to know the position of the McDonald’s Corporation at any time during the year (Bradley, Capozza, & Seguin, 1998). iii. To predict the future performance of McDonald Corporation using the present financial ratios. This will depend on the trend analysis of each individual parameter in combination with the figures for 2012. For example, if the values of fixed assets have been increasing constantly, it is possible that the trend will continue assuming that all other factors remain constant. The same prediction will be done for other parameters like the market share prices, capital debt, fixed asset and net income of the McDonald’s Corporation. The combination of the three objectives will provide a platform for clear recommendations and the company management to aid the administration in sound decision-making. 1.4. Research Questions As we undertake this study, there are specific questions, which the research attempts to answer in order to achieve the objectives. Here is a summary of the research questions: i. Does the profits of McDonald’s Corporation in the United Kingdom grow upwards or diminishes, and at what pace does its growth take place? This will be a vital parameter to study about the organization because it will provide a clear direction of McDonald Corporation (Cadez & Guilding, 2008). At the same time, it will determine the recommendations that the study will provide at the end as areas of improvements. The level of profitability and cash flow will be important measures from the trend, focusing on the financial years from 2010 to 2012. ii. How stable is the McDonald’s Corporation in the UK in terms of cash flow? Having been in operation for many years, it will be important to know whether the cash flow is growing of dropping. This will be interesting because in the UK alone, McDonalds has so many permanent premises for food stores. It also has more than 100 franchised restaurants in the UK, for example, the Market Street, in Manchester. iii. What is the asset base of the McDonald’s Corporation, and how does it compare with the other competitors in the market? This study finds the asset base of the company to be very essential. It thus investigates the magnitude and the result of both the current assets and the fixed assets that the McDonald’s Corporations own in the United Kingdom alone. It assumes that each subsidiary is self-regulating and operates liberally (Clinton & Van, 2006). 1.5. Overall Research approach The research uses a systematic approach of data collection from the secondary sources related to the McDonald’s Corporation. It avoids irregularity and bias in its analysis and presentation by doing a comparison between the financial performance of the McDonald’s Corporation and Burger King, which is also a very strong global retail chain with its subsidiaries all over the world. This study focuses on comparing all the results for the two corporations. There will be a parallel analysis of the two organizations’ performances based on the common financial aspects such as the history of profits for the three consecutive years, the amount of available assets, the performance of the shares in the public stock market and the dividend payment. The process that will be followed will be the normal statistical procedure of data collection, data analysis, data presentation, interpretation, conclusion and recommendation for decisions. This will take place in parallelism, with one segment of the data collection focusing on Burger King while the other dwells on data related to the McDonald’s corporation. It will then be possible to compare the financial performance and comparison to identify which of the two companies is stronger in cash flow and profitability. This is essential because the research will use the end year results for the two companies for the three consecutive years (Clinton, Matuszewski, & Tidrick, 2011). 2. PART 2: Information Collection and Accounting (Business) Techniques 2.1. Information Gathered As previously mentioned, this study involved a systematic statistical process, beginning from data collection, data analysis, data interpretation, data presentation, conclusion and recommendation. All the steps and processes involved are listed including all the weaknesses and strengths of the methods used in the statistical processes. The information was gathered through a quantitative approach rather than a qualitative data collection. It was irrelevant to use qualitative data collection methods because the parameters we used were measurable and already had been quantified as amounts in GB Pounds (Cole, 2003). 2.1.1. Sources of Information This research mainly used secondary sources of data, using the financial reports that had been declared at the end of the year 2010, 2011 and 2012. The report is inclusive of all the relevant information linked to the financial items. The main source of data source were the financial report account books including the balance sheets, the final year ledger reports, the declaration of profit and loss, dividend allocation and the stock market performance of the subsidiaries of McDonald’s Corporation and also for the King for the purpose of comparison. There was no extra source of information for data collection because we presumed that end-year financial reports must include every aspect of financial performance such that we do not have to source more information from another source. In fact, any extra information that was not declared in the financial dashboard would discredit the financial reports. Other sources of information that also contributed to the compilation of the reports in this study include economic and statistical study books. They provided informative literature concerning the McDonald and the Burger King Corporations (Dutta, 2003). 2.1.2. Methods of Data Collection The only method we used in Data collection in this study was data mining from secondary sources, since we could not use primary source. Based on the important parameters such as cash flows and profitability of the McDonald’s Corporation, we selected similar items from each year to form raw data, which we later used for analysis and interpretation. 2.1.3. Reasons for Choosing the Methods The reasons why we decided on the data mining as a method for data collection was that the data was already available in the secondary reports. In other words, we already had reliable information in the financial dashboard that had been declared in the previous years, and part of the data we had in the report had been analyzed and interpreted. Any other method such as interview, questionnaire and observation could not provide any information other than what we already had in the reports (Edstrom & Galbraith, 1977). 2.1.4. Strength of the methods The greatest advantage that we had in the use of the data mining on secondary data was that we were using reliable sources. Besides, these results had passed the approval of a professional audit teams. Even better still, they originated from the very books of accounts of the organizations. Secondly, the reports were easy to get without engaging the relevant departments on so much work. We therefore did not have to do a lot of preparation for the task of data collection as it is usually with questionnaire and interviews. The third fundamental merit of this method is that it includes interpreted information and properly presented analysis, which could possibly predict the expected trends in the present and the subsequent financial positions. The method used is less costly compared to other methods. It does not require logistical preparation of equipment, tools, funding and transpiration cost. In fact, it is possible to conduct a whole data collection session without necessarily having to be physically present in the premises of the McDonald Corporation or the Burger King. 2.1.5. Limitations of the methods In spite of all the strengths of the data collection method, it also became clear that this method had its own weaknesses. First, it was based on the non-flexible sources of information. There were no instances, in which we could have various options for the same results. If the McDonald’s annual profit for 2011 rose by 1.5 percent from the previous year’s results, then this could not change no matter how many rounds of observations we make. This meant we over relied on one source that could not provide room for various sample tests. The methods are not open to discussion and alteration as it could have been in the cases of qualitative questionnaires and interviews. The flexibility is usually essential to enable the data collection process and participants to have a clear understanding of the information they are gathering. Finally, this method eliminates the interactive contacts between the study participants and the organization representatives. Considering the fact that all the questions that this study is interested in are already presented in the financial report, there is no more question of interest, which the organization officials can answer outside the contents of these results (Egelhoff, 1984). 2.1.6. Ethical Issues in information Gathering There were issues of ethics and integrity that essentially surrounded our sources and ways of information collection. First, we had to practice professionalism in the way we treated the financial report. Without supervision, we had to practice integrity and honesty in declaring accurate information without twisting. We also had to take responsibility of guarding the information from unauthorized access and misuse. It is possible that when people access sensitive information like the financial reports, they share them with potential fraudsters and expose the company and its officials to serious risks and losses. The other potential ethical issue that this study was exposed to was the temptation to adjust certain measures to suit certain favorable calculations. Of course, this would have presented different results from the results presented in the financial declarations of the McDonalds Corporation. It would have been a show of irregularity and gross misconduct (Ethics Scoreboard, 2006). 2.1.7. Solutions for The Ethical Issues The solutions to the issues that we faced about ethics were to maintain a high standard of integrity by practicing honesty, reliability and confidentiality. We had to be perfectly accurate in the presentation of our data whether we pointed out errors in calculations or not. This study had to declare accurate information and avoid exaggerations, because of accountability and indemnity issues. The second solution is that we had to restrict the information collected to the main topic of study in order to avoid irrelevant enquiries that could violate the company rules and possible attract legal battles. Thirdly, we had to avoid discussion of the company matters with any other party other than the concerned relevant entities. This was to avoid the possible breaches of confidentiality. The company has to provide its rules, policies and regulations governing research so that it can give a clear cover for this research and act as a guideline to the practice of ethical boundaries (Fatehi, 1996). 2.2. Accounting / Business Techniques 2.2.1. Accounting / Business techniques used In this study and its discussions, we consider that McDonald is a multinational profit making organization with a wide network of subsidiaries. We have applied selected accounting and business analytical methods such as cost and benefit analysis, cash flow computation and profit and loss evaluation. Even though the elements of accounting and business study are independent, this study topic is open to making a combination of the various methods to present multiple aspects of financial position of the McDonald’s for the strength of its analysis. The second technique that this study applies is the application of financial ratios such as the dividend allocation proportions, the working capital, equity ratios, the Weighted Average Capital Cost (WACC), the net present value and the asset to liability ratios. This study also applies trend analysis by comparing the results of the present financial year with the previous years’ results. If the gradient of the profitability line is positive, then there is a progressive growth in profits, and there are elements of performance that have to be maintained and even improved further. However, if the gradient of the line is falling, then the profitability is dropping and there has to be a list of recommendations to rectify the situation (Geringer & Hebert, 1989). 2.2.2. Discussion of Their limitation These techniques are essentially vital to this nature of study especially because they use the final accounts’ information. They however have serious limitations when used in the study of the financial positions of the McDonald’s Corporation. Principally, the ratios are very selective in their application. A particular ratio such as the Weighted Average Capital Cost uses selected information and parameters such as the Return on Equity and cost of equity among others very few parameters. It is therefore not sufficient to cover the holistic picture of the company. Secondly, most of the ratios and the aspects of financial analysis are not relevant to the investors. The main focus of investors from their own perspective is to measure whether the McDonald Corporation is profitable or not and whether it has the capacity to pay dividend at the end of a particular financial year to its shareholders or not. It therefore means that this study conducted many computations that are not essentially applicable in the study topic (Han, 2008). 3. PART 3: Results, analysis, Recommendation and Conclusion 3.1. Presentation Results The Results for McDonald Corporation in United Kingdom based on the performance dashboard for the three years 2010, 2011 and 2012 appears in the Appendix page on Table 1. From the report, we made a comparison of the annual performance in order to answer the research questions and eventually to test the hypothesis of the research. The results were broken into different parameters for example, the measure of current assets were as presented below: Figure 1: Total Current Assets For 2010, 2011 and 2012. We then measured fixed assets which were supposed to answer one of the research questions. It presented a rather intriguing result that the value of fixed assets were diminishing between the years under the research. It was intriguing because even though the fixed asset values were reducing, the total assets maintained a growing progress, owing to the rising value of the current (Short Term) assets. Figure 2: Total Value of Fixed Assets The second parameter we compare in this case is the total assets, which include the Fixed Assets and the current assets: Figure 3: Values of Total Assets Figure 4: Diluted Shares Earnings in Pounds Per Share for McDonald Corporation Figure 4: Market Share of Burger King Figure 5: Net Operating Incomes for McDonald Corporation for 2010, 2011 and 2012. We also presented results for the financial performance of Burger King. It was clear that the two companies had similar items in their annual reports such as Franchised Expenses. Even so, the two companies referred to various items in different ways. The financial report for Burger King Corporation UK appears as presented in table 3 in the appendix pages. For Burger King, we also presented the trend analysis for the purpose of comparison with McDonald franchised items. Fundamentally, we presented the data for Burger King balance sheet as well for the three years for the purpose of comparison. Just as we did to the McDonalds Corporation, we presented the comparison of data for the Total Assets for the Burger King Corporation. The graphical representation of the analytical results appears as shown below: Figure 6: Total Assets for Burger King for 2010, 2011, 1nd 2012. We also compared the capital Debt for the two organizations and came up with the results as shown below: Figure 7: Capital Debt for McDonald Corporation Figure 8: Capital Debt for Burger King Figure 14: Comparison of capital Debt for McDonald and Burger King. Another fundamental aspect of financial performance that we compared between the two companies is the net incomes after considering taxation, which we used as our pointing measure to profitability and cash flow index. Figure 9: Net Income for Burger King 3.1.1. Discussion of the Results The results indicate that the two companies had recorded remarkable financial comparison for the three years in a systematic order that can easily be analyses. McDonald through the three years held large asset base and earned more net income for the three consecutive years. In this discussion, we separated the parameter and performed a separate analysis for each. 3.1.1.1. Total Assets For McDonald Corporation, the total Assets increased progressively through the three years. It produces a positive gradient showing that the asset base for the company was on a constant growth; hence, it was possible to predict that in the subsequent year, the asset base could continue to rise in the same manner. One of the reasons for the increase was low depreciation, which the financial conducted and had an effect on the fixed assets. For Burger King, the value of all assets began from a low point of GB Pounds 31975 in 2010 then rapidly rose to GB Pounds 32990. In 2012, the value of all assets fell to the original of GB pounds 31975. This is because the company through the department of procurement purchased high value fixed asset during the year, which were disposed before the end of 2012. It also means that there was no calculation of depreciation of the residual fixed assets through the three years. If the procurement does not procure any new asset in the next one year or the company does not compute the value of depreciation for the fixed assets in the next one year, it means the value of assets will remain at GB Pounds 11505. It is important to note at this point that all the amounts in this comparison were measured in Millions for Burger King Corporation and for McDonald Corporation. Figure 10: Comparison of Asset Values between McDonald and Burger King Corporation 3.1.1.2. Net Income Net Income for McDonald began from a high amount of 7703 Million GB Pounds, and then it reduced to 6968 Million GB Pounds. In the final year 2012, it dropped further to 6773 Pounds. It is possible that at the end of 2013, the operational income will have dropped further if it will not remain the same. It does not appear that the operational income can rise in the next year unless McDonald Corp takes a swift transformation in its operational risk management, to mitigate the risks of financial losses. For Burger King, the net income fell from 2010 to 2011, but regained its position of increase in 2012. This is because of the fact that the company took remedial actions on the key financial performance indicators that could be leading to the loss. One of the actions that have to be taken as a matter of urgency in McDonald Corporations in UK is to increase its franchised income and reduce operational losses through cost cutting. It has to increase its sales volumes through extensive sales promotion in the UK. Figure 11: Comparing Net Income between McDonald and the King Burger 3.1.1.3. Capital Debt The capital debt between the two companies indicates that the two financial results were exactly opposite each other in the manner of their performance. Every tome Burger King was moving upwards in its capital debt, McDonald Corporation was moving downwards and vice versa. For example, in 2011, McDonald‘s capital debt went down, while Burger King’s capital debt rose. In 2012, McDonald’s capital debt rose while that of Burger King dropped. 3.1.1.4. Diluted share earnings This is where McDonald appears to have performed better than King Burger has by displaying an indicator of stability. McDonald began from 7.49 GB Pounds per share in 2010 and dropped to 4.6 GB Pounds per share in 2011. Even so, it began to grow reaching 6.33 GB Pounds per share in 2012. This is a positive indicator that in 2013, the share earnings may go up. On the other hand, King Burger began from a high amount of 7.34 GB Pounds per share in 2010 but fell gradually, reaching 6.74 GB Pounds per share in 2011 and eventually 5.80 GB Pounds per share. Figure 12: Comparing Diluted Share Earnings for McDonald and King Burger Figure 13: Integrated comparison between diluted Share Earnings of McDonald and King Burger 3.1.2. Limitation of the results The results have experienced several limitations in the mode of data presentation and the contents. One of the areas of weaknesses is in the random selection of parameters. The selection of parameters did not follow a uniform procedure because for the sake of fairness, it would have been prudent to measure all the parameters involved in the financial statements of the three companies. This leads to the second limitation that not all the parameters in the two financial results are the same. Each financial statement has certain unique parameters that the other company does not have. For example, while McDonald separates between Fixed Assets and current Assets, it is not easy to separate between the two categories of assets in the Burger King’s financial statement. Burger King simply classifies the assets as total assets. Thirdly, the scales of measurement of the parameters are not equal except perhaps the Diluted Share earnings in Pounds per share. This of course is expected because the asset base and cash flow of the two companies are very different. There is no way to consolidate the scale and any attempt to harmonize the parameters of different scales may only lead to irregularity. In fact, the only aspect of the parameters we have been able to measure is the behavioral trends of performance of the parameters, in the way they increase or drop with time. 3.2. Analysis and Evaluation of Results In the analysis of this study, we focused on the measures of the aggregate values of performance of the McDonald’s Corporation for the three years in order to measure its business and financial performance. In that, we were mostly interested in the measure of the average positions of the parameters of interest, to use as the standard measure of financial performance. We measure business performance using parameters such as the net profit and the market share value, while the capital debt and the asset base enables us to measure the position of financial performance. 3.3. Explanation of the Significant Findings Out of the data presented in the analysis, the selected parameters are the most influential items on the financial and business performance of the two companies. It is clear that the scales of measurement of the parameters are different, but the sequence of this analysis is consistent to the scales in each case. Considering each of the company individually, the business performance for McDonald’s Corporation began from high values then it experienced a drop in the second year 2011. However, the performance rose for both the Net Profits before taxation and the price of the shares in the stock market. The results for 2012 were however below average, calling for remedial actions to improve the situation. The financial performance, the total asset value was performing well for McDonald’s Corporation with the asset values of the year 2012 being above average. The capital debt dropped by, even though, by a small margin. This was a negative indicator for the organization because it would require more sources of funding if the trend continues. In the Burger King’s case, both the market share prices and the net profits before taxation remained below average in the final year 2012. This was an indicator that regardless of the internal and external facilitating factors, the company was on a diminishing trend of business performance. The margins by which the net profits after taxation dropped was remarkably large and threatening to fall even further if the company will not take radical actions. At the same time, its financial performance also remained below average showing that the performance was a challenge with the stability of the company’s financial performance indicators and only required ways of very radical and rapid remedial actions for improvement. Ultimately, the financial and business performance of McDonald Corporation is more stable than some well-known organizations in the global scene, as can be seen when compared to the results of Burger King Corporation. It however has rooms for expansion and improvement in most of its performance indicators for sustainable future growth (Thomas & Jay, 2004). 3.4. Conclusion The results of the analysis of business and financial performance of McDonald Corporation is conclusive enough to show that it is in the right direction towards more stable future positions in the competitive business world of franchised restaurants (Watson & Head, 2007). Using Burger King Corporation as an example of business competitors, it is evident that McDonald Corporation is more competitive than a number of companies in the same field. It is not possible to state its position as to whether it is the best company or in whichever position. The main business performance indicator that the shareholders are keenly interested in is the net profit before taxation, which McDonald’s Corporation is not too far from attaining. There is need for improvement if the company is ever to end the diminishing trend of profitability and attain a profit of more than 42 Billion GB Pounds (Smith, 2007). 3.5. Evaluation of the Objectives In this study, we reviewed our objectives, one to consider the level at which this study was successful. In the first objective, we intended to do an analysis on the financial and business performance of the McDonald Corporation for 2010, 2011 and 2012. This study successfully conducted the analysis and came up with conclusive results. For example, it successfully did analysis of the profits and the assets of the company in a way that could predict the possible positions for the subsequent year 2013. In the second objective, we sought to investigate the variation of the prices of shares in the stock market. It sought to compare this with the market prices of competing companies in the franchised enterprises to investigate the level of competence. The comparison of McDonald’s Corporation and the Burger King’s results was able to prove this. Beginning with the share values, McDonald’s share prices were increasing in 2012 at a time when that of Burger King Corporation was dropping in the UK. This was essential because it proved that the McDonald’s Corporation was able to satisfy the needs of the shareholders. It was also able to increase the investor satisfaction index and satisfy the board of administration, which reports directly to the shareholders (Sharpe, 1964). The study was finally able to satisfy the third objective, which was to predict the values of the selected parameters and the overall financial and business performance in the coming years. It successfully predicted the trends of the parameters for the year 2013, for all the parameters selected in this research. Of course, the reason for selecting these parameters was that they were conclusive on the entire performance of the company, since they included the effects of the other key performance indicators. For example, the net profit was calculated using parameters such as franchised restaurant sales, and operational expenses. In this case, there was no need of measuring the values of sales and operational costs in the analysis (Richard, 2005). 3.6. Review of the Research Questions In the research questions, this study sought to evaluate whether the trend profitability of McDonald’s Corporation was indicating a growth or a decline. It confirmed that indeed there was an issue with the profits in the organization. The profits before taxation in McDonald Corporation in the UK were fluctuating every year. The result for the final year was a drop from the year 2012. This was a very critical aspect of the performance to study about the company considering that the shareholders have been interested in the same findings. It provides the right direction of McDonald Corporation for the future actions that will have to be taken. Eventually, it provides ground for the recommendations for the limits of actions and the costs of operation as the administration seeks to implement the areas of improvements. In the second question, there was a growing interest in the study of the behavior of asset values in the McDonald’s Corporation. This was to investigate whether the asset base was growing or falling in the McDonald Corporation, particularly in the subsidiaries in the UK. It begins the investigation from the year 2010, even though the company had been in operation for many years from 1954. It was a vital parameter because the asset base of McDonald was large, whereby in the UK alone, it had has so many permanent business premises. McDonald’s Corporation also has more than 100 franchised restaurants in the United Kingdom, which raises the expectation of the investors concerning the impact of the growing assets on the business and financial performance of the company. Based on the apparent significance of the asset base of the organization to its returns, this study found the parameter of assets to be very essential, and hence did an investigation of the magnitude by which it contributed to the end business and financial results (Mead, 1994). It successfully answered the questions concerning the topic of the study and presented analytical results in a way that they are informative, predictive and conclusive. From the research questions, the entire presentations, comparisons and discussion of the results were indirect answers, presenting a holistic picture of the past, the present and the future business and financial performance of the McDonald’s Corporation (Hodgetts & Luthans, 1994). 3.7. Recommendation of Specifics Courses From the conclusion of this study, there are actions, which as earlier mentioned, the administration of McDonald’s Corporation ought to carry out very urgently to secure improved results for the year 2013. The actions are specifically focusing on individual parameters, not only limited to the key performance indicators. One of the actions is for the McDonald’s Corporation to increase its sales volume with a specific target for the year 2013. It has therefore, to increase its sales promotion within the UK, including the franchised restaurant products, the quality of customer service and the brand name that McDonald Corporation owns worldwide. The goodwill has the potential of increasing the competence of the company. The second action involves a mission to implement cost reduction. Even though the average of the general expenses rests at ?4,542,330 GB Pounds, this is still too high and can be reduced further to increase the net profit for the year 2013. It can implement this action through restructuring of the organization policy. The main aim should be to attain a specific profit after tax of more than 42 Billion in 2013 and to maintain an upward growth in the subsequent years. The third action is to maintain the growing trend of asset base of the company by maintaining the fixed assets in quality conditions to reduce depreciation (Pai & Geltner, 2007). It will also be advisable to increase the capital investment and reduce its liabilities to boost the gains from investment to enable the company to have a competitive advantage over its close competitors such as the Burger King Corporation in the UK. 3.8. Financial Ratios In the analysis, the study covered the computation of the financial ratios of the two companies. The calculations are based on the average for the three years as follows: Total asset turnover Ratio = (Net Sales / Total assets) Current ratio = (Current Assets / Current Liabilities) Debt Ratio = (Total liabilities / Total assets) Return on Sales = (Net earnings Before Taxation / Net Sales) Financial Ratio Calculations McDonald’s Corporation Total asset turnover Ratio Net Sales / Total asset 27,356,666,667 / 39,265,633,330 = 0.6967 Current ratio Current Assets / Current Liabilities 10988933333 /2575773333 = 4.266 Debt Ratio Total liabilities / Total assets 21962233333/39432300000 = 0.55696 Return on Sales Net earnings Before Taxation / Net Sales 7148000000 / 27,356,666,667 = 0.2612 Financial Ratio Calculations Burger King Corporation Total asset turnover Ratio Net Sales / Total asset 27261000000 / 32313333330 = 2.61 Current ratio Current Assets / Current Liabilities 25319250000 / 11836670000 = 2.139 Debt Ratio Total liabilities ? Total assets 26389330000 / 32313330000 = 0.81667 Return on Sales Net earnings Before Taxation / Net Sales 9431000000 / 27261000000 =0.346 3.9. Business performance By SWOT Analysis In further evaluation, we did a critical SWOT analysis of the two companies and made a parallel comparison as follows: 3.9.1. McDonald Corporation Strengths Has a large capital base which provides greater ability to invest. Has more stable cash flow as seen its calculation of the current ratio Has a wide branch network worldwide which adds to its goodwill and sustainability Weaknesses Much has been spent on the procurement of fixed assets, which could have added to its liquidity. Opportunities It has more openings for franchised sales, since there is a large part of the UK that has not been marketed. It has greater borrowing power as seen in its debt ratio. This can boost its cash flow and earnings on the shareholders equity. Threats There are competitors such as the Burger King, in the same business. 3.9.2. Burger King Corporation Strengths Burger King has more stable cash flow and liquidity as seen in its current ratio. Burger King has a large asset base which is a facilitating factor for more investment and additional stock. Weaknesses Burger King does not have many branches, so it doesn’t maximize its sales Burger King has high level of operational expenses, which minimize its net income Opportunities It has a wide opening for business in the non-marketed areas of the UK. Threats There are competing companies in the franchised restaurant business in the UK such as the McDonald’s Corporation. Reference List Accounting Education Change Commission, 1993. Issues Statement Number 4: Improving the Early Employment Experience of Accountants. Sarasota, FL: American Accounting Association. Bhattacharyya, D., 2011. Management Accounting. New Delhi: Pearson Education India. 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Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance, 19 (3), pp. 425-442. Smith, A.F., 2007. The Oxford companion to American food and drink. Oxford: Oxford University Press. Thomas, D., & Jay, P. P., 2004. McDonald's. International directory of company histories, 67. Gasparro, A., & Jargon, J., 2012. McDonald's to Go Vegetarian in India. The Wall Street Journal. Watson, D., & Head, A., 2007. Corporate Finance: Principles and Practice. New York: Prentice Hall. Appendix Data for Burger King Balance Sheet Financial Report for McDonald Corp (United Kingdom) Financial Year Ending 2012 2011 2010 Assets (Measured in Thousands) Current Assets Cash 3447200   3446800   3498000   Short-Term Financial Investments 3231700   4890700   6090500   Net Values Receivable 2486400   2445800   2289200   Stock 232800   227900   211000   Miscellaneous Current Assets 2190000   726900   783600   Current Assets Totals 8356400 11738100 12872300 Long-Term Financial Investments 1380500   1,427,000   1,335,300   Equipment, Plant and Machinery 24677200   22,834,500   22,060,600   Goodwill 2804000   2,653,200   2,586,100   Intangible (virtual) Assets 3400   5600  7800 Total Amortization 4600   23900   51000 Other general Assets 1605700   1,672,200   1,624,700   Charges for Deferred Long-Term Asset 800 1000 1400 Total Assets 38829200 38928500 40539200 Liabilities Short Term Liabilities Accounts Payable 3504100   3264800   2928600   Short / Current Debts 264800  388800   8800   Other Miscellaneous Short term Liabilities 4500   5800   7800   Total Current Liabilities 3773400 3659400 2945200 Long Term /Fixed Capital Debt 14742600   12244900   13490000   Other Liabilities 2553400   2824700   2970700   Charges for Deferred Fixed Liabilities 1637200   2377100   2652700   Minor Interest 3400   7500   4500   Goodwill (Negative) 0   0   0   Total Liability 22710000  21113600   22063100 Stockholders’ Equity Common Inventory (Stock) 17,700   17,700   17700   Residual Earnings 40,388,000   37,777,500   38822700   Treasury Stock (32,776,500) (27,320,900) (26247400) Capital Excess 5888900   5577400   5297400   Other Miscellaneous Equity for Stockholder 897,600   549,700   763000   Total Equity for Stockholder 14415700 16761400 67661700 Net Assets (Tangible) 16,119,200 17,814,900 18,476,100 Table 1: balance Sheet for McDonald’s for 2010, 2011 and 2012 Consolidated Operating Results For McDonald's Corporation UK   Amounts Declared All Amounts are in Millions of GB Pounds except the share price 2010 2011 2012 Revenues Earned ?29,008.00 ?28,095.00 ?24,967.00 Operated Franchised Margins of the Company ?5,675.00 ?5,395.00 ?5,000.00 Franchised margins ?9,436.00 ?8,686.00 ?7,085.00 Franchised expenses ?4,596.00 ?4,555.00 ?4,476.00 Incomes ?10,750.00 ?9,695.00 ?9,063.00 Net Operating income ?7,703.00 ?6,968.00 ?6,773.00 Diluted Share Earnings ?7.49 ?4.60 ?6.33 Table 2: Income Statement for McDonald for the periods ending in December 31 2010, 2011 and 2012 Burger King Financial Results Operating results                           2010   2011 2012 Amount in Millions of GB Pounds Declared Amount   Declared Amount   Declared Amount Revenues   Sales By Restaurants ?20,405.00 ?18,655.00 ?17,765.00 Franchised Restaurants Revenues ?10,925.00   ?9,543.00   ?9,100.00 Total Revenues ?29,928.00   ?26,987.00   ?24,868.00 Operating expenses   Company expenses (Operated Restaurant) ?16,056.00 ?15,765.00 ?14,987.00 Franchised expenses (Operated Restaurants) ?2,163.00 ?3,456.00 ?3,178.00 General Expenses (Selling and administration) ?3,658.00 ?4,765.00 ?4,476.00 Charges for Impairment and other charges ?6.00 ?32.00 ?57.00 Operating Expenses ?455.00   ?365.00   ?356.00 Total operating expenses ?20,657.00   ?18,657.00   ?17,654.00 Operating income ?10,675.00 ?9,645.00 ?8,675.00 Operating Interest expenses ?654.00 ?632.00 ?602.00 Non-Operating Income Expenses ?27.00 ?24.00 -?24.00 Surplus from selling of investment         ?97.00 Income before Income Taxation ?10,654.00   ?9,210.00   ?8,429.00 Provision for income taxation ?4,790.00   ?4,073.00   ?3,768.00 Net income after taxation ?7,705.00   ?6,508.00   ?5,467.00 Earnings for every Common share (Not In Millions of Pounds) ?7.34 ?6.60 ?5.60 Diluted (Weighted Average) Common Shares Outstanding ?3,066.00   ?2,856.00   ?2,102.00 Table 3: Income Statement for Burger King for 2010, 2011 and 2012 Burger King balance Sheet As At the 31st of December for 2010, 2011 and 2012 GB Pounds in millions 2010 2011 2012 Net income ?5,864.00 ?5,137.00 ?4,661.00 Cash provided by operations ?6,342.00 ?8,563.00 ?6,863.00 Cash Invested ?3,867.00 ?3.75 ?3,901.00 Capital expenses ?2,367.00 ?2,456.00 ?2,135.00 Cash for financing ?4,872.00 ?5,987.00 ?4,387.00 Treasury stock ?4,987.00 ?4,876.00 ?3,987.00 Cash dividend for Common stock ?3,454.00 ?3,454.00 ?3,456.00 Financial position at the end of the year Total Fixed assets and Current Assets ?31,975.00 ?32,990.00 ?31,975.00 Total Capital debt ?11,505.00 ?12,500.00 ?11,505.00 Total shareholders Gains on Equity ?14,634.00 ?14,390.00 ?14,634.00 Outstanding Shares in Millions ?1,054.00 ?1,021.00 ?1,054.00 Prices of shares in Pounds per common share Income from Diluted operations ?6.50 ?5.27 ?4.58 Diluted Gains ?7.34 ?6.70 ?5.80 Dividends Announced ?2.56 ?2.70 ?2.29 Market Share price at the end of the year ?77.40 ?99.45 ?78.54 Company Operated Expenses (restaurants) ?7,300.00 ?7,800.00 ?6,399.00 Franchised restaurants ?26,338.00 ?27,075.00 ?26,338.00 Total restaurants ?33,731.80 ?34,989.12 ?32,828.21 Total Revenues ?31,330.00 ?28,198.00 ?26,865.00 Franchised sales ?65,061.80 ?63,187.12 ?59,693.21 Table 4: Balance Sheet for Burger King as at 31 December the year 2010, 2011 and 2012 The result of the analysis was thus summarized in the table below: McDonald Corporation, UK 2010 2011 2012 Average Business Performance Net Profit after Taxation (Thousands) ?40,388,000.00 ?37,777,500.00 ?38,822,700.00 ?38,996,066.67 Market Share prices(Pounds per Share) 7.49 4.6 6.33 6.14 Financial performance Total Asset Value (Thousands) 38329200 38928500 40539200 39265633.33 capital Debt (Thousands) 14742600 12244900 13490000 13492500           Burger King Corporation, UK 2010 2011 2012 Average Business Performance Net Profit after Taxation (Millions) 7703 6968 6773 7148 Market Share prices(Pounds per Share) 7.34 6.7 5.8 6.613333333 Financial performance Total Asset Value (Millions) 31975 32990 31975 32313.33333 capital Debt (Millions) 11505 12500 11505 11836.66667 Table 5: Analysis of the Financial and Business performance Read More