Introduction
McDonald’s corporation is undoubtedly the largest chain of hamburger fast food restaurants in the world. The restaurant serves more than 58 million customers every day (McDonalds, 2010). The operation of McDonalds is like a typical large chain that operates as a corporation, a franchise, or at times as an affiliate. It draws its revenues from various sources such as franchise fees, rent from its various properties across the world and mostly sales from its company operated restaurants. In the last three years, significant growth has been evident with the company registering a 27% growth (McDonalds, 2010).
Main Discussion
The main products of McDonalds are: hamburgers, chicken products, cheeseburgers, french-fries, typical American breakfast snacks like eggs, a variety of soft drinks, desserts, and shakes. With the changing trends of health realization, more consumers are focusing on healthy diets and the company has come up with a menu that accommodates alternatives which targets customers interested in healthy products like salads, fruits and wraps (McDonalds, 2010). This is basically what McDonald’s deals with and this is how it operates in its various outlets and franchises. Being such a big company, it attracts a lot of investors and it is important to periodically determine its financial worth. Analysis in this study will be based using four methods of determining McDonalds worth namely: net worth method, future earnings, price earnings ratio, and lastly the outstanding shares method.
In the year ending 2008, the net worth or the stockholders’ equity was $31,207,900. This includes the addition of common stock, retained earnings, and intangibles like goodwill (David, 2008). This means that the shareholders were confident enough to hold onto their stock and the revenues that were collected and retained was relatively high, amounting to $28,953,900. This is a large retained amount for any company since all expenses have to be deducted including dividends to shareholders so that profits can be ploughed back as retained earnings.
It is also a valuable company if the expected future earnings are considered. The future earnings of McDonalds were promising going by the estimated figures of $21,566,000 (David, 2008). This figure was calculated using the net income method with a staggering $4,313,200 being the net income times five. The value of McDonalds is considered great based on current earnings and expected earnings.
Using the price earnings ratio, the McDonald is worth precisely $45,445,479 (David, 2008). This was a result of calculating the share price of McDonald’s stock divided by the earnings per share times the average net income divided into three years. The share price is $55 quite a stable figure for a chain of Restaurants Company. This figure is affordable and attractive to any investor, and also at the same time a good price for a shareholder who wants to offload the share depending on the buying price at the time of purchase. It is also a stable share because it earns $0.81 per share a relatively fair earning per share.
The value of McDonalds can also be analyzed using the outstanding shares method. By using this method, McDonald is worth $61,693,000 (David, 2008). This involves multiplying the 1,126,600 shares that McDonalds has with the share price of $55. This is the easiest way of findings McDonalds worth and any investor willing to deal with McDonalds in any form of business or to purchase stock will consider the company’s worth using this method.
Conclusion
According to the study, McDonalds is worth an estimated figure of between $21,566,000 and $61,693,000 depending on the method used to calculate its worth. This makes it the biggest and most profitable chain of hamburger fast food restaurants in the world. Over the years it has steadily claimed a deserved place among the biggest companies in the world. With such a large income it has been able to attract a large pool of investors. What is more amazing about McDonalds is that despite being an extremely valuable company, it currently has a share price that is affordable to all types of investors i.e. it’s not too expensive or cheap. It is advisable for any rational investor to invest in McDonalds because if it continues with the steady trend of raking in similar amounts of income, and expanding at the same rate, it will soon be a global giant in the same rank as Coca Cola Company.
References
David, F. (2008). Strategic Management: Concepts and Cases. North Carolina: Pearson Education.
McDonalds. (2010). Corporate Information. Web.