Case Study on Mc Donald: Questions and Answers
- Document Type : Other
- Subject: Accounting
- Number of Words: 6000
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Case Study on Mc Donald
McDonald’s Reports Second Quarter 2020 Results
CHICAGO, July 28, 2020 /PRNewswire/ — McDonald’s Corporation today announced results for the second quarter ended June 30, 2020.
“Throughout our history, McDonald’s has demonstrated the strategic foresight necessary to position our business for the future. Our strong drive-thru presence and the investments we’ve made in delivery and digital over the past few years have served us well through these uncertain times. We saw continued improvement in our results throughout the second quarter as markets reopened around the world,” said McDonald’s President and Chief Executive Officer Chris Kempczinski. “I’m especially proud of the way the McDonald’s System continues to provide a safe environment for both customers and crew, building on our 65 year legacy as a responsible and reliable choice for safe food. We’re confident that the strong foundation we’ve built, combined with the unique advantages of our System, position us well to continue operating successfully during this pandemic and emerge even stronger.”
Second quarter operational update and financial performance:
- As of June 30, 2020, nearly all McDonald’s restaurants around the world were open to serve
- Global comparable sales declined 23.9%. The U.S., International Operated Markets segment and global monthly comparable sales sequentially improved throughout the second
- Consolidated revenues decreased 30% (29% in constant currencies).
- Systemwide sales decreased 24% (23% in constant currencies).
Diluted earnings per share was $0.65. COMPARABLE SALES*
Comparable sales are compared to the same period in the prior year and represent sales at all restaurants, whether operated by the Company or by franchisees, in operation at least thirteen months,
including those temporarily closed.
- Comparable Sales: Global comparable sales results sequentially improved throughout the second quarter of 2020 as markets reopened restaurants and governments eased
- S: Comparable sales results sequentially improved throughout the second quarter of 2020 and continued to benefit from strong average check growth. Comparable sales and guest counts remained negative, particularly at the breakfast daypart.
- International Operated Markets: Comparable sales results were heavily impacted by temporary restaurant closures and limited operations, particularly in the U.K. and France. While comparable sales remained negative in nearly all markets, comparable sales results sequentially improved throughout the quarter for all Comparable sales were positive in Australia in May and June driven by strong drive-thru performance.
- International Developmental Licensed Markets: Comparable sales results were impacted by temporary restaurant closures across nearly all geographies, most notably in Latin America. Results also reflected continued negative comparable sales in China and positive comparable sales in Japan for the quarter.
KEY FINANCIAL METRICS – CONSOLIDATED
Dollars in millions, except per share data
Results for the quarter and six months reflected sales performance declines due to temporary restaurant closures, limited operations and dramatic changes in consumer behavior as a result of COVID-19.
Results for the quarter and six months also included the following:
- Over $200 million of committed incremental franchisee support for marketing to accelerate recovery and drive growth across the U.S. and International Operated
- About $100 million was recorded in the U.S., with over half of that amount reflected in franchised margins and the remaining amount reflected in Selling, General and Administrative
- The remaining over $100 million of support was recorded in Selling, General and Administrative Expenses in the International Operated Markets
- $31 million of payments to distribution centers for obsolete inventory to support franchisee liquidity (reflected in Other Operating (Income) Expenses, Net).
- An increase in reserves for bad debts of $45 million and $92 million for the quarter and six months, respectively.
- Lower gains on sales of restaurant businesses.
- Lower equity in earnings of unconsolidated affiliates.
Foreign currency translation had a negative impact of $0.01 and $0.03 on diluted earnings per share for the quarter and six months, respectively.
Outlined below is additional information for the quarter and six months ended June 30, 2020:
Results for the quarter and six months 2020 included $0.01 per share of pre-tax strategic charges primarily due to the write-off of impaired software that was no longer being used of $12 million and $26 million, respectively. The six months was offset by $13 million of income primarily comprised of a reversal of a reserve associated with the Company’s sale of its business in the India Delhi market in January 2020.
Results for the quarter and six months 2019 included $78 million of pre-tax strategic charges, or $0.08 per share, primarily related to impairment associated with the purchase of our joint venture partner’s interest in the India Delhi market, partly offset by gains on the sales of property at the former Corporate headquarters.
Below is a summary of the operating status of McDonald’s restaurants around the world as of June 30, 2020. The Company has continued to follow the guidance of expert health authorities to ensure the appropriate precautionary steps are taken to protect the health and safety of our people and our customers.
PERCENT OF OPERATING RESTAURANTS
As of June 30, 2020
International Operated Markets 94
International Developmental Licensed 94
*Restaurants include those with limited operations including drive-thru, delivery, and/or take-away.
- Substantially all restaurants were operating drive-thru, delivery, and/or take- away with a limited Limited hours also applied.
- About 2,000 restaurant dining rooms reopened with reduced seating
International Operated Markets:
- All markets were operating with drive-thru and delivery (where available) with limited menus and
- Some markets were operating take-away and/or dine-in with reduced seating
International Developmental Licensed Markets:
- Substantially all restaurants in China and Japan were operating with reduced seating capacity for dine-in.
- Latin America was the geography with the most restaurants closed.
Questions: (relevant information, besides the extract above, can be had from the Company’s website)
- Businesses can be impacted by Discuss the impact of COVID-19 (negative/positive) on the overall health and revenue of McDonald’s in various markets.
- Compare the Income statement and Balance sheet of previous years. Identify the factors that can be adversely affected by market fluctuations and factors that are stable and can contribute to
- Go through the previous years’ results from the Company’s website and understand if the Financial statement forecast is
- Identify the market(s) that are more profitable and with available data, understand how it/(they) perform better than other markets. From the Financial statement of McDonald’s of previous years, find out if there is a change in Owner’s
- View the Cash Flow statement of the Company for the current year and previous year from their website. Understand whether the cash flow from operations cover both the capital expenditures and the firm’s dividend payments if any? Find out how the business invested the excess cash if Assess the financial strength of the business.
- Based on the Financial Statements and major ratios for the current and past two years available at the website, comment on the financial health of the company taking into consideration all the major ratios.