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Analyzing McDonalds (Case Study Sample)

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This paper analyses McDonald's fast food restaurants in terms of its market presence, profitability levels, competition that the organization faces and general industry and economies in which the restaurants operate in.

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McDonald's Research Project
Student's Name
Institution
Abstract
This paper analyses McDonald's fast food restaurants in terms of its market presence, profitability levels, competition that the organization faces and general industry and economies in which the restaurants operate in.
Keywords: growth, profitability levels, competition, industry
McDonald's Research Report
Introduction
Headquartered in Oak Brook Illinois, McDonalds Corporation is the world's number one food chain that serves about 50 million customers daily. The company licenses and operates more than 31,000 restaurants (Toivanen, Waterson, & Centre for Economic Policy Research Great Britain, 2011).
Product Lines; Industry Classification
The product lines of the company includes hamburgers, chicken, fish, French fries, pork products, soft drinks and health items like deserts and salads. In a more general perspective, the company operates in a food service industry.
Area of Operations
McDonalds Corporation franchises and also operates restaurants under McDonalds brand in the food service industry. The restaurants are either operated by franchisees or by the company itself (Toivanen, Waterson, & Centre for Economic Policy Research Great Britain, 2011).
Annual Sales/Earnings
The organization earns increased sales in comparison to other organizations, within the same industry, due to the relatively lower product cost and a stronger brand. It also enjoys immense franchise model due to the fact that it owns vast amounts of land and buildings in which the restaurants operate in. The company's recorded earnings for a five year period are shown as below;
2008

2009

2010

2011

2012

$ 20,895

$ 22786

$ 23522

$ 22744

$ 24076

Market Capitalization
The company is listed in the NYSE and has a market capitalization of $ 95.62 billion (Zukovski, & Syddansk Universitet, 2013).
Trends in Company's Profits
In the past 10 years, McDonald has had its revenue increase at the rate of 5.44 %. For instance, within the previous year of 2012, the revenue increased by 5.86 %. This increase can partly be attributed to the 541 new restaurants that were opened in the course of 2010. Also, the profits are derived from the increased sales that the organization has enjoyed over the years (Zukovski, & Syddansk Universitet, 2013).
The operating margin and net margin increased in the year 2012 to 35 % and 25 % respectively as compared to 33 % and 20 % in 2011 respectively. The trend for the other years from 2001 to 2010 is as shown bellow (Zukovski, & Syddansk Universitet, 2013).
Future Growth Prospects
The company aims at focusing more on Chipotle Grill, a successful non-McDonald branded chain of restaurants that has been acquired by the company. The company also aims at increasing profitability by slowing down on its further expansion projects in restaurants in order to refurbish and change the image of its current restaurants and add such more features as free-internet access (Gilbert, 2011).
McDonald has plans for international expansion; the company intends to penetrate in other countries like Asia, Europe and Latin America. Since the adoption of healthier eating style, the company introduced more acceptable and newer premium salads for its customers. The company continuous to conduct extensive research and innovation activities in order to fairly meets the needs of the customers.
Summary Recommendation
The company needs to reduce its training costs and employee turnover. This can be achieved through employing only those individuals who are highly motivated. This will ensure that they will be loyal to the organization, stay for a longer period without seeking employment elsewhere and thus, enhance the realization of the company's goals and objectives. The new employees can as well be oriented by existing employees in order to impact them with enough experience and skills. This will immensely reduce training costs that would otherwise been incurred by the organization. Accordingly, employees should be motivated and their expectations taken care of in time. This can be attained by way of paying premiums to employees who deserve them. Also, management should recognize good skills amongst employees and reward them (Toivanen, Waterson, & Centre for Economic Policy Research Great Britain, 2011).
Notwithstanding, the organization should take advantage of the popularity of the organic food industry. This can be affected by including in their respective menus organic foods. It is important to realize that most customers desire for natural foods however expensive it may be. This will ensure that the company records more profits out of increased customer loyalty and a subsequent intensive customer-base.
The company should also take advantage of the impending health situations of their customers and thus, customize their food to what is recommended by nutritionists (Gilbert, 2011).
Rationale behind the Recommendations
The above mentioned recommendations are aimed at increasing customer base and also, their immediate loyalty to the company. This, in turn, will increase and enhance profitability of the organization leading to its growth and expansion.
General Assessment of Economic Trends
The organizations operating within fast food industry are not, in any way, exempted from possible problems and disputes. The industry experiences problems that reflect on involved business models. The numerous networks and branches of McDonalds have, over a long period, experienced problems and operational difficulties. This is in respect to the situations where the economies of the states that the organization operates in are experiencing changes in exchange rates and are prone to inflation tendencies. Therefore, customers face a lot of difficulties in making their budgets in order to try and adjust to the ever-changing economies. Drawing from this reasoning, these chains need to work out on how to respond to and mitigate these problems and thus, ensure that their sales are not affected. In such situations, most of the raw materials used should be imported in order to ensure that there is no delivery slack and also, enjoy reduced costs (Toivanen, Waterson, & Centre for Economic Policy Research Great Britain, 2011).
Interest Rates and Inflation
There are a myriad of factors that are affecting the immediate operations of the restaurant. The major of these factors being economic forces. It is worth to note that disposable income is one of the fundamental factors that influence the decision making capabilities of the organizations on a daily basis. The interest rate changes are one of the economic factors that the company must deal with. This is because; the interest rates determine the amount of cash that the firm's customers are willing to spend on its products and the much that they are willing to invest within its stocks. It is important to realize that the changes in the stock markets affect the organization's stocks as well (Smith, 2008).
Consequently, inflation also affects the organization. For instance, it is argued that when there is a lot of cash circulation in an economy where the restaurants operate, it translates to increased demand. This, in turn, leads to increases in the prices of raw materials used in producing food. This has an effect of increasing the prices of the foods offered in order to offset the costs incurred. Thus, the organization is obligated to cushion itself against the effects of inflation by ordering raw materials from economies that have not experienced worse inflationary tendencies and interest changes (Smith, 2008).
Demographics
The organization indulges in providing fast food services to a variety of consumers majorly in big cities with dense population. It is also worth to note that the organization has allowed its customer base a chance to make choices on their food requirements. The elderly are the major beneficiaries of this privilege as they are allowed to make special orders not included within the menu (Gilbert, 2011).
Political Factors
The company's international business operations are conducted under the separate-state policy that is authorized by the separate governments. Most notably, it is should be understood that numerous markets depict unique aspects of their worker's health, protection and also, their environmental welfare. All these aspects are regulated by the relevant state control and licensing boards placed within the aforementioned separate governments. Recently, activists groups in both the United States and Europe demanded that the acts of government authority should also concern itself with the medical values of fast food meals. It was categorically emphasized that such harmful components as cholesterol and fat concerns should be reduced in fast food products (Toivanen, Waterson, & Centre for Economic Policy Research Great Britain, 2011).
Impact of Economic Trends on Stock Price and Industry Growth Prospects
The Organization has demonstrated increased economic growth since its revenue has been increasing at the rate of 5.4 % for the last 10 years. This growth has led to the growth of the company's stock within a five year period (Zukovski, & Syddansk Universitet, 2013).
On the contrary, due to numerous inflationary tendencies there has been an adverse impact on the company's stocks and other stocks within the industry causing a drop on their respective prices. This is because in the course of inflation, most investors assume that organizations may hold back from conducting growth-spending activities. This, in turn, has the effect of causing a decrease in revenues across the board since increased food prices translates to poor stock prices.
High interest rates also have a negative impact on the stock prices of...
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