McDonald’s (2019) Due date : 5/11 midnight

Assume no financial assets for McDonald’s, thus no financial income. Do not try to identify FA or financial income (point will be deducted if you don’t follow)

Also assume that, for 2019 and 2018, all of other comprehensive income is operating.

1. Determine ROCE (Return on common equity), 2019 and 2018. 2. Why are McDonalds’ equity negative? Is this sign of trouble? If not, what is it?

Explain clearly. 3. Is negative ROCE that you observed in question 1 an indication of trouble?

4. Determine Comprehensive Income (also known as comprehensive earnings) to McDonald’s shareholder for 2019 and 2018. Make sure to show the components of OCI. Is ROCE on comprehensive basis (uses comprehensive income as numerator in Q1) significantly different from ROCE in Q1? Why (or why not)?

5. For 2019 and 2018, determine the dividends, net of capital contributions for the common shareholders in two ways (formula based and component based). Are the two method reconciled? If not, which one is right and how do we fix the other?

6. Interpret net dividend you calculated and time trend.

7. On debt,

a. Prepare a schedule showing the firm’s financial obligations (also known as financial liabilities or debt) for 2019 and 2018.

b. Identify the financial expense (also known as cost of debt, this should include all the cost related to Debt, $ amount, in I/S). Does interest expense include the expense that is not related to debt or are there other items that belongs to cost of debt, but not included in interest expense? Explain.

c. Estimate the firm’s borrowing cost before and after taxes for 2019 and 2018. Assume the total debt in 2017 is 29,500 (hypothetical number).

d. For 2019, reconcile weighted average of BC and BC based on cost of debt (identified in b)/Avg Debt, and explain the difference. If the difference is significant, what is your best guess on borrowing cost?

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8. For 2019, 2018 and 2017 (use hypothetical debt amount, 29,500 for 2017), determine the firm’s operating assets, net of operating liabilities (NOA).

9. For 2019 and 2018, determine the firm’s effective tax rates. If the firm’s effective tax rate in 2019 differs from the statutory (or “marginal”) tax rate, in a sentence or two describe the major reason(s).

10. Estimate the firm’s RNOA (=NOPAT/Avg NOA) for 2019 and 2018.

11. Reconcile ROCE and RNOA for 2019 and 2018. 12. Evaluate the following statement: “McDonald’s is an example of a company that

relies successfully on leverage to finance its operations”. When answering this question, consider both year, 2018 and 2019.

13. Based on Q3, calculate Comprehensive NOPAT. Remember, generally, NI + OCI = CI. Net income is on I/S, and on comprehensive basis, income is called comprehensive income. NOPAT is income earned (after tax) based on operating activities. Then, on comprehensive basis, what should be income earned on operating? This is Comprehensive NOPAT.

14. Estimate and compare the recent yearly growth in EPS vs. growth in NOPAT. In a sentence or two, what is the major reason why the two growth rates differ (or are similar)?

15. The answer to this question should be presented first in your report: Summarize five (bullet) points that investors should know about McDonald’s after they read financial statements. (At least four of them should be based on the analysis 1-11)