Last Updated 12 May 2020

McDonald Stock valuation

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Mc Donald's is a global foodservice retailer with more than 30,000 restaurants serving nearly 50 million people in more than 119 countries each day. The company was founded by Ray Kroc and in 1965 McDonald's went public a hundred shares of stock cost $2,250 dollars that day would have multiplied into 74,360 shares today, worth over $1. 8 million on December 31, 2003. The stock is currently trading for $49. 23. 1. Current Ratio: Is an indication of a companies' ability to meet short term debt obligations. It is equal to current assets divided by current liabilities.

The higher the ratio the more liquid the company is. If the current liabilities exceed current assets, then the company might have problems meeting its short term obligations. Current Ratio of McDonald's Corp, is 1. 2 which indicates that the company is highly liquid and is safe to invest. Quick Ratio: is simply current assets minus inventory divided by current liabilities. It is one of the measures of a company's liquidity and ability to meet its obligations.

Quick ratio is viewed as company's financial strength or weakness i.e. higher number means stronger, lower number means weaker. Current Ratio of McDonald's Corp, is 1. 16 which indicates that the company is financially strong and is safe to invest. Earnings/Share (EPS): EPS serves as an indicator of company's profitability. It is calculated by dividing net income less preferred stock dividends by the number of out standing shares. It is the portion of companies profit allocated to each outstanding share of common stock. Higher EPS indicates higher return on share holder's investment.

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Price Earning (P/E) Ratio: The P/E ratio is equal to a stock's market capitalization divided by its after-tax earnings over a 12-month period. It is the most common measure of how expensive a stock is. The value is the same whether the calculation is done for the whole company or on a per-share basis. A higher P/E ratio implies that the market is willing to pay more for each dollar of annual earnings and is more likely to be considered as more risky investments than the stock with low P/E ratio because a high P/E ratio signifies high expectations.

The last year's price/earnings ratio (P/E ratio) would be actual, while current year and forward year price/earnings ratio (P/E ratio) would be estimates, but in each case, the "P" in the equation is the market price. Comparing P/E ratios is most valuable for companies within the same industry. Companies with negative earnings does not have P/E ratio at all. P/E ratio of McDonald's is 16. 60. It means that to earn $1 earnings from this stock the investor has to buy the stock at $16. 60. The PE ratio in this case is not very high and the company is not at a high risk.

Enterprise value / EBITDA Analysis: Enterprise value is equal to company's market capitalization + face value of the debt. EV/EBIDTA measures the markets expectations of to what extent the companies operations are worth. A low ratio indicates that a company might be undervalued. Since EBITDA eliminates the effects of financing and accounting decisions, it can be used to analyze the profitability between companies and industries. This ratio can vary depending on the industry. Therefore, it's important to compare the multiple to other companies or to the industry in general.

We generally expect higher EV/EBITDA in high growth industries and lower multiples in industries with slow growth. EV/EBIDTA for McDonald's Corp is 10. 714 Analysis of S. E. C. Filings and Shareholder Information In the company's 10K statement Mc Donald's has stated that they face risks such as adapting their business model in particular markets. Mc Donald's faces risks in many countries because they do not fully own their restaurants and they stated that this might affect the way they operate due to regulatory rules around the world.

A major risk that this company faces is also that the world has become more aware of nutritional values of food and expects a great deal of freshness and healthy prepared food. This is becoming challenging for Mc Donald's since they are known to be an unhealthy food distributor. 2 The company's dividend payments have increased over the years they reported paying $1. 00 in 2006 up from . 67 in 2005 and . 55 in 2004. 3 Their stock price also increased in 2006 to $#44. 33 up from $33. 72 in 2005 and $32. 06 in 2004. In the 10 Q statement the company reported that approximately 2,300 restaurants in 2005 represented $2.5 billion in sales.

However the expenses and losses amounted to; $150 million in selling, mainly from the general & administrative expenses, operating loss $21 million, capital expenditures of $100 million and slightly negative free cash flow. 4 In order to change this and turn around the situation, Mc Donald's wants to sell these restaurants to a single licensee. The 2,300 restaurants are currently operated by the company and represent a 3 billion dollar investment this suggests that $800 million in accumulated currency losses are reflected in shareholders' equity.

In October 2001Mc Donald's announced $5. 0 billion share repurchase program with no specified expiration date. In March 2006, the Company's Board of Directors authorized an additional $5. 0 billion to this share repurchase program, for a total of $10. 0 billion. 6 In the company's proxy statement the company stated that their directors must acquire common stock or common stock equivalent units equal 10,000 shares. This shows how the company wants its directors to have a stake in the company so that they can work harder and better to make the company more profitable.

The proxy statement also shows that the largest single common stock holders are AXA with common shares of 70,644,490 which amount to 5. 7 % and Dodge ; Cox with common shares of 67,966,771 which amount to 5. 5 %. 7 McDonald's Corp. Common Stock Recommendation: After analyzing McDonald's annual report for the year 2006 and the ratios we have come to the conclusion that investment in this stock is beneficial. The recommendation is based on following judgments and facts which come out from the company's financial statements and Quarterly report.

McDonald Stock valuation essay

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