McDonald’s Case Study – Problem Statement
McDonalds is unable to have a consistent and increasing rise in its gross profit. Although the revenues from 2011 to 2013 have been rising steadily by an average of $500,000 the revenue for 2014 has declined. This has therefore decreased the gross profit yet the income tax and most other corresponding factors remain the same.
See also: McDonalds Causes Obesity in United Sates
- The Income tax charged on the company’s proceeds for the year 2014 and 2012 are similar, however, the company’s profit was $11,995,000 in the year 2014 from $12,401,500 in 2013 and $12,218,500 in 2012. Since the tax cannot be blamed for the decline in profit it is necessary to look at other factors. Despite this decrease in gross profit in 2014, the gross profit margin can be argued to be healthy since it has maintained at an average of 0.44.
- According to McDonalds Strategic financial analysis, the company’s total liabilities have seen a continuous increase throughout the five years. Rising from $17,341,000 in 2010, through $20,092,900 in 2012 to $21,428,000 in 2014. Since these liabilities contain debts to be paid regularly, they cause a decline in gross profit after any revenues are made. The liabilities/equity ratio also saw a sharp increase in 2014. It was at 1.29 in 2013 by rose sharply in 2104 to 1.69. The previous years had an average of 1.29 and therefore, the liabilities accrued in 2014 had a huge influence on the companies financials.
- Health concerns. McDonalds deals mostly in fast foods that have been immensely blamed for most health and weight problems. Despite efforts by the company to manage this such as the 15% reduction in sodium on its foods, there is a large perception that the foods are still unhealthy leading to most people avoiding its stores. This has therefore translated to less sales and less income. Evidently, the income for 2014 declined by $664400 from 2016.
- The number of employees has decreased slightly into 2014, their income has also reduced. Although this should translate to more profit, this has not materialized. This could therefore be blame on the productivity and efficiency of most of the employees that could translate to more revenues by the company.
- Switching to healthier food alternatives. To deal with the negativity placed on fast foods such as those sold by McDonalds, the company could choose to make changes to its menu. Due to changing environments, most companies and institutions choose to change adjust their operations to suit the current trends. This in turn translates to continued increase in revenues and consistent operations. For McDonalds the same could be done though it would face varied opinions from diehard lovers of McDonalds. Fast foods are its brand and the change could taint this brand. The companies’ outlets would change from being the fast food joints most people identify them with, to regular restaurants where someone can have a salad or soup. This change however, would translate to those customers moving away from McDonalds outlets due to the health concerns retaining their loyalty to McDonalds and thus continued rise in revenue.
- To manage the unfavorable liabilities the company could reduce the number of outlets it has. Although a difficult decision, this option could favor the company’s finances. Many outlets lead to increased costs. The outlets require more labor hence increase in labor cost, they require capital to start, which could come from loans hence increase in liabilities. By cutting down on the number of outlets it has, it would also be able to deal with the two problems arising from labor; Complaints about rude employees and wages. The company has been under intense pressure to increase its wages to a $15 per hour minimum which through good for the employee, is damaging to the company’s finances especially if it does not translate to more revenues.
Switch to healthier food alternatives. Saturated fats and foods high in calories have been blames for most health problems such as obesity, high blood pressure and heart problems. Most medical research recommends a change of diet to healthier foods such as vegetables and fibers. This is centrally to what fast food joints such as McDonalds have been selling. Despite the fact that these fast foods once had a huge popularity they are being looked down upon and thus lees business for McDonalds. It customers who are mainly composes of young people are also becoming more receptive to healthier food options. To retain its revenues, McDonalds needs to adjust its menu to suit this growing trend. In addition, upcoming technologies are making it possible to make fast foods that do not pose any health risk. It decision to reduce sodium in most of its foods I s good and should be followed by using oils that are cholesterol free and preparing foods with less calories. Not only would this ensure sustainability of revenue but it would provide competition to similar companies such as Burger King and KFC hence a rise in revenue.