niyas assignment

8/12/2019 Niyas Assignment

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McDonalds Corporation.

Company Profile

McDonalds Corporation, incorporated on December 21, 1964, franchises and operates

McDonalds restaurants in the global restaurant industry. hese restaurants ser!e menu at

!arious price points pro!iding !alue in 119 countries globally. "ll restaurants are operated either

by the Company or by franchisees, including con!entional franchisees under franchise

arrangements, and de!elopmental licensees and foreign affiliated mar#ets under license

agreements. $nder the con!entional franchise arrangement, franchisees pro!ide a portion of the

capital re%uired by initially in!esting in the e%uipment, signs, seating and decor of their

restaurant businesses, and by rein!esting in the business o!er time. he Company o&ns the land

and building or secures long'term leases for both Company'operated and con!entionalfranchised restaurant sites. (n certain circumstances, the Company participates in rein!estment

for con!entional franchised restaurants. "s of December )1, 2*12, )4,4+* restaurants in 119

countries at year'end 2*12, 2,++2 &ere franchised or licensed -including 19,+69 franchised to

con!entional franchisees, 4,)* licensed to de!elopmental licensees and ),66) licensed to

foreign affiliates -primarily /apan0 and 6,9+ &ere operated by the Company.

McDonalds restaurants offer a uniform menu, although there are geographic !ariations to suit

local consumer preferences and tastes. McDonalds menu includes hamburgers and

cheeseburgers, ig Mac, uarter 3ounder &ith Cheese, ilet'5'ish, se!eral chic#en

sand&iches, Chic#en Mcuggets, 7nac# 8raps, rench fries, salads, oatmeal, sha#es, Mclurry

desserts, sundaes, soft ser!e cones, pies, soft drin#s, coffee, McCafe be!erages and other

be!erages. (n addition, the restaurants sell a range of other products during limited'time

promotions. McDonalds restaurants in the $nited 7tates and international mar#ets offer a full or

limited brea#fast menu. rea#fast offerings may include gg McMuffin, 7ausage McMuffin

&ith gg, Mc:riddles, biscuit and bagel sand&iches, and hotca#es. he business is managed as

distinct geographic segments. (ts segments include the $nited 7tates -$.7.0, urope, and

"sia;3acific, Middle ast and "frica -"3M"0. (n addition, it presents 5ther Countries and

Corporate, &hich includes operations in Canada and


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restaurants -small, limited'menu restaurants for &hich the land and building are generally

leased0, and closed 269 traditional restaurants and 2** satellite restaurants

2. Significant performance indicators

= he Company pro!ides the percentage changes e>cluding the impact of foreign currencytranslation. hese amounts are deri!ed by translating current year results at prior year a!erage

e>change rates. 8e belie!e the elimination of the foreign currency translation impact pro!ides

better year'to'year comparability &ithout the distortion of foreign currency fluctuations.

= 7ystem sales gro&th includes the results of all restaurants regardless of o&nership, including

Company'o&ned, franchise, unconsolidated affiliate and license restaurants. 7ales of

franchise, unconsolidated affiliate and license restaurants generate franchise and license fees

for the Company -typically at a rate of 4? to 6? of sales0. ranchise, unconsolidated affiliate

and license restaurant sales are not included in Company sales on the Condensed

Consolidated 7tatements of (ncome@ ho&e!er, the franchise and license fees are included in

the Companys re!enues. 8e belie!e system sales gro&th is useful to in!estors as a

significant indicator of the o!erall strength of our business as it incorporates all of our re!enue

dri!ers, Company and franchise same store sales as &ell as net unit de!elopment.

= Company restaurant margin as a percentage of sales is defined as Company sales less

e>penses incurred directly by our Company restaurants in generating Company sales di!ided

by Company sales.

"ll ote references herein refer to the accompanying otes to the inancial 7tatements.

abular amounts are displayed in millions e>cept per share and unit count amounts, or as

other&ise specifically identified. "ll per share and share amounts herein and in the

accompanying inancial 7tatements and otes to the inancial 7tatements ha!e been adAusted to

reflect the /une 26, 2** stoc# split.

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Consolidated Statements of Cash Flows

iscal years ended December 29, 2*12, December )1, 2*11, and December 2, 2*1*

-(n millions0


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Cash lo&s B 5perating "cti!ities 2*12 2*11 2*1*

et (ncome ' including non'controlling interest 1,6*+ 1,))1,1+

Depreciation and amortiation 64 62+ +9

Closures and impairment -income0 e>penses ) 1) 4Eefranchising -gain0 loss -+0 2 6)

Contribution to defined benefit pension plans -1190 -6)0 -20

Mc DonaldsF retirement plan settlement change +4 B B

:ain upon consolidation of a former unconsolidatedaffiliate in China

-40 B B

Deferred income ta>es 2+ -1)0 -11*0

%uity income from in!estments in unconsolidatedaffiliates

-40 -40 -420

Distributions of income recei!ed from unconsolidatedaffiliates

41 )9 )4

>cess ta> benefit from share'based compensation -9+0 -660 -690

7hare'based compensation e>pense * 9 4

Changes in accounts and notes recei!able -1+0 -)90 -120

Changes in in!entories 9 -0 -6+0

Changes in prepaid e>penses and other current assets -140 -20 61

Changes in accounts payable and other current liabilities 9 144 61

Changes in income ta>es payable 126 1*9 1*4

5ther, net 1* 1*1 1)et Cash 3ro!ided by 5perating "cti!ities 2,294 2,1* 1,96+

Cash lo&s G (n!esting "cti!ities

Capital 7pending -1,*990 -94*0 -960

3roceeds from refranchising of restaurants )64 246 26

"c%uisition -4)0 -+10 -620

Changes in restricted cash )** -)**0 '

5ther, net -20 69 14

et Cash $sed (n (n!esting "cti!ities -1,**0-1,**60 -90

Cash lo&s G inancing "cti!ities

3roceeds from long'term debt B 4*4 )*

Eepayments of long'term debt -2+20 -6660 -290

Ee!ol!ing credit facilities, three months or less, net B B -0

7hort'term borro&ings by original maturityH


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More than three months ' proceeds B B B

More than three months ' payments B B B

hree months or less, net B B -)0

Eepurchase shares of Common 7toc# -960 -20 -)10

>cess ta> benefit from shareBbased compensation 9+ 66 69mployee stoc# option proceeds 62 9 1*2

Di!idends paid on Common 7toc# -440 -4+10 -4120

5ther, net -+0 -4)0 -)+0

et Cash $sed in inancing "cti!ities -1,160-1,41)0 -))0

ffect of >change Eates on Cash and Cash %ui!alents 21 21

et (ncrease -Decrease0 in Cash and Cash %ui!alents -4220 -22+0 1,*)

Cash and Cash %ui!alents G eginning of Iear 1,19+ 1,426 ))

Cash and Cash %ui!alents G nd of Iear 6 1,19+ 1,426

Consolidated Balance Sheets

iscal years ended December 29, 2*12 and December )1, 2*11

-in millions0

Assets 202 20

C!rrent Assets

Cash and cash e"!i#alents $%%& $'()

Acco!nts and notes recei#a*le' net +0 2)&

,n#entories ++ 2%+

Prepaid e-penses and other c!rrent assets 2%2 ++)

Deferred income ta-es 2

Ad#ertising cooperati#e assets' restricted +&

/otal C!rrent Assets '(0( 2'+2

Property' plant and e"!ipment' net '20 '02

1oodwill '0+ &)


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,ntangi*le assets' net &(0 2((

,n#estments in !nconsolidated affiliates %2 &%

estricted Cash 3 +00

4ther assets % %

Deferred income ta-es ) (

/otal Assets $ ('0 $ )')+

5ia*ilities And Shareholder6s 7"!ity

C!rrent 5ia*ilities

Acco!nts paya*le and other c!rrent lia*ilities $ '( $ ')%

,ncome ta-es paya*le (% 2

Short8term *orrowings 0 +20

Ad#ertising cooperati#e lia*ilities +&

/otal C!rrent 5ia*ilities 2')) 2'0

5ong8term de*t 2'(+2 2'((%

4ther lia*ilities and deferred credits '%( '%

/otal 5ia*ilities &'&(( &'()

edeema*le non8controlling interest ( 3

7hareholdersJ %uity -Deficit0

Common Stoc9 3 )

:Acc!m!lated deficit; retained earnings 2'2)& 2'02

Acc!m!lated other comprehensi#e loss :+2; :2%;

/otal Shareholders6 7"!ity 8 MC D4


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cept per share data0

e#en!es 202 20 200

Company sales $')++ $0')(+ $ ('%)+

Franchise and license fees and income ')00 '%++ '&0

/otal re#en!es +'&++ 2'&2& '++

Costs and 7-penses' net

Company resta!rants

Food and paper +')% +'&++ +'0(

Payroll and employee *enefits 2'&20 2') 2'%2

4cc!pancy and other operating e-penses +'+) +'0)( 2')%

Company resta!rant e-penses (')2 ('0 )'20

1eneral and administrati#e e-penses '0 '+%2 '2%%

Franchise and license e-penses ++ 0

Clos!res and impairment :income; e-penses +% + %

efranchising :gain; loss :%); %2 &+

4ther :income; e-pense :; :+; :+;

/otal costs and e-penses' net '++( 0') ('%

4perating Profit 2'2( ') '%&(

,nterest e-pense' net ( & %


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,ncome *efore ,ncome /a-es 2' '&( '(

,ncome ta- pro#ision +% +2 &

hat rights do stoc9holders ha#e?

/he stoc9holders right in Mc Donalds *rands

he stoc#holders Eights 3lan is intended to protect Mc Donalds and its stoc#holdersfrom efforts to obtain control of Mc Donalds that the oard of Directors determines arenot in the best interests of Mc Donalds and its stoc#holders, and to enable all


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stoc#holders to realie the long'term !alue of their in!estment in Mc Donalds. heEights 3lan is not intended to interfere &ith any merger, tender or e>change offer or otherbusiness transaction appro!ed by the oard of Directors.

3ursuant to the 3lan, Mc Donalds is issuing one Eight for each current share of

common stoc# outstanding at the close of business on May 1). (nitially, these rights &illnot be e>ercisable and &ill trade &ith the shares of Mc Donalds common stoc#. (f Eightsbecome e>ercisable, each Eight &ill entitle stoc#holders to buy one one'thousandth of ashare of a ne& series of participating preferred stoc# at an e>ercise price of *.9* perEight.

he Eights &ill be e>ercisable only if a person or group ac%uires 1 percent -or2* percent in the case of institutional in!estors filing on 7chedule 1):, as described inthe Eights 3lan0 or more of Mc Donalds common stoc# in a transaction not appro!ed byMc Donalds oard of Directors. (f a person or group ac%uires 1 percent -or 2* percentin the case of 1): institutional in!estors0 or more of Mc Donalds outstanding common

stoc#, each Eight &ill entitle its holder -other than such person or members of suchgroup0 to purchase, at the EightJs e>ercise price -subAect to adAustment as pro!ided in the"greement0, a number of shares of Mc Donalds common stoc# ha!ing a then'currentmar#et !alue of t&ice the e>ercise price.

(n addition, if after a person or group ac%uires 1 percent -or 2* percent in thecase of 1): institutional in!estors0 or more of Mc Donalds outstanding common stoc#,Mc Donalds merges into another company, an ac%uiring entity merges into Mc Donaldsor it sells or transfers more than * percent of its assets, cash flo& or earning po&er, theneach Eight &ill entitle the holder thereof to purchase, for the e>ercise price, a number ofshares of common stoc# of the person engaging in the transaction ha!ing a then'current

mar#et !alue of t&ice the e>ercise price. he ac%uiring person &ill not be entitled toe>ercise these Eights.

Mc Donalds oard of Directors may redeem the Eights for *.**1 per Eight atany time before an e!ent that causes the Eights to become e>ercisable. he Eights &ille>pire on the third anni!ersary date of the "greement, unless the Eights ha!e pre!iouslybeen redeemed by the oard of Directors.

+. >hat is the #al!e of share of stoc9 when the di#idend grows at constant rate?

(f di!idends are constant fore!er, the !alue of a share of stoc# is the present !alue

of the di!idends per share per period, in perpetuity. pected ne>t period and each period thereafter,fore!er, 3* represent the price of a share of stoc# today, and r the re%uired rate of returnon common stoc#.1 he current price of a share of common stoc#, 3*, isH

3*K D1 L r.

he re%uired rate of return is the compensation for the time !alue of money tiedup in their in!estment and the uncertainty of the future cash flo&s from these


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in!estments. he greater the uncertainty, the greater the re%uired rate of return. (f thecurrent di!idend is 2 per share and the re%uired rate of return is 1* percent, the !alue ofa share of stoc# is 2*. herefore, if you pay 2* per share and di!idends remain constantat 2 per share, you &ill earn a 1* percent return per year on your in!estment e!ery year

(f di!idends gro& at a constant rate, the !alue of a share of stoc# is the present!alue of a gro&ing cash flo&. (f di!idends gro& at a constant rate, g, fore!er, the present!alue of the common stoc# is the present !alue of all future di!idends, &hich B in theuni%ue case of di!idends gro&ing at the constant rate g B becomes &hat is commonlyreferred to as the di#idend #al!ation model

D0(1+g) D1

P0= -------------------------- = -------

r - g r g

1. Payback period

Inv. Amount End of year net cash inflows

Years 0 2013 2014 2015 2016 201

!"!A#I$%#"&

'

$ew(entures 3000000 )**000

)*)00

5*)000 525600

1)600

3000000

Payback Period =

Initial Investment

Cash Inflow per Period

cash flows in millions)

Cumulative

Cash FlowYear

Cash

Flow

0 3000000 3000000

1 899000 (2101000)


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2 789800 1311200

3 598000 713200

4 525600 187600

5 187600 0

Payback Period

= 3 + (1251400525600)

= 3 + 1!35

= 4.35 years

2. Net Present Value

"is#ou$t rate% 21&

'olutio$

Fa#tors%

Year 1 = 1 * (1 + 21&)1 , 0!9475

Year 2 = 1 * (1 + 21&)2 , 0!8182

Year 3 = 1 * (1 + 21&)3 , 0!7086

Year 4 = 1 * (1 + 21&)4 , 0!6158

Year 5 = 1 * (1 + 21&) 5 , 0!5382

-et .rese$t value #a$ /e #al#ulate as

years 1 2 3 4 5

Net cash flow ***000 *)*)00 *)000 625600 5)600

Total cash flow ***000 *)*)00 *)000 625600 5)600

Total cash flow x Present valuefactor

0!9475 0!8182 0!7086 0!6158 0!5382

*46552. )0*)54. 565462. 3)5244. 316246.


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5 4 ) 5 3

Total PV in cash flows-Initialpayment

3023360

3000000

Net Present Value23360.

6

+. A#erage Acco!nt et!rn

"!erage accounting return, also called acco!nting rate of ret!rnor "EE

##ou$ti$ ate o etur$ is #al#ulate usi$ the ollowi$ ormula%

ARR =

Average Accounting Profit

Average Investment

$itial i$vestme$t= 3000000 illio$

.e#te a$$ual #ash i$low i$ 5 :ears% 4000000 illio$

"e.re#iatio$ is allowe o$ the straiht li$e /asis

;he estimate e$erate s#ra. value at the e$ o 5 :ears% 10


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##ou$ti$ ate o etur$ = 34< 12100* 300< 0000 , 1.14%

(nternal Eate of Eeturn$ter$al rate o retur$ () is the is#ou$t rate at whi#h the $et .rese$t valueo a$

i$vestme$t /e#omes >ero!

ime3eriod

3roAect " (EE (EE 1 -(EE 10 N

3O of Cashlo&

* -)******0 *.2 ' ' -)******0

1 ***000 *.2 1.2 1.2 992**

2 *)*)00 *.2 1.2 1.6 6)44+

) *)000 *.2 1.2 1.9 4*92)*4 625600 *.2 1.2 2.44 24)))

5)600 *.2 1.2 ).* 1926

otal ofCash lo&s

*

IRR 25%

eference

1. Oan

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