Accounting (McDonald Company)

This paper provides a financial analysis of MacDonald’s Company with a focus on financial statements of the fiscal year 2015. The MacDonald’s is a global food and beverage Company that operates over 100 countries in different parts of the world. The Company’s global business system is comprised of both food and beverages as well as franchised restaurants.
From the analysis, the company sustained a strong financial performance in 2015 fiscal year with comparable global sales increased by 1.5 percent thus driving a positive performance in various segments of the business in both third and fourth quarters. In international lead markets, the comparable sales increased by 0.5 percents though in the United States the comparable sales decreased by 3.0 percent. The Company’s pension’s scheme provided a diverse contribution levels mostly based on the age of the employee and their length of service.
The analysis concludes by providing two assumptions to calculate pension benefits and other retiree’s benefits in a company: first, the price inflation is expected to 2 percent per annum in five consecutive years. Also, another assumption is that pension savings are expected to rise to 5 percent per annum in the consecutive years in which majority of the Company’s asset is expected to concentrate at Level 3 categories.
The aim of this paper is to analyze the company’s financial statement, pensions and other post benefit plans with a special focus on MacDonald’s Company, MacDonald’s is a global food and beverage Company that operates over 100 countries in different parts of the world.

The Company’s global business system is comprised of both food and beverages as well as franchised restaurants.
By June 2015, the Company had managed a geographical segments of United States, Europe, Asia and Pacific as well as countries in the Middle East. In 2015 also it is good to note that the company started operating in under new institutional structure that integrates market with corresponding features to enhance growth and create more opportunities (MacDonald Annual Report, 2015).
Since it was established, the company has maintained a very strong financial performance which has much been contributed by the company’s leading unit volumes. The leading unit volumes have enabled the company to maintain and sustain growth through effective business strategies and economic cycles while ensuring shareholders receive significant cash every year.
The stable revenues in the company is much facilitated by moderately low costs from franchised business hence creating effective co-investment capital expenditures and other key initiatives including the reimaging (Coronado et al., 2003). Moreover, it is good to note that the Company’s key business models is characterized by low capital intensive while the franchisees invest highly on the cost of going into the business and probably its future investment.
On the other hand, the company’s significant cash flow provides Macdonald with a strong credit rating a factor that creates flexibility in funding the capital expenditure and returning of cash to the shareholders. Through effective evaluation in 2015, the Company management decided to come up with a plan of optimizing capital structure and rising the cash return to the shareholders with the aim of targeting more than $30 billion for the next three year period. This move also enabled the Company to cost effectively able to access capital globally and at the same time ensuring the company has continued investment. This decision from the board of directors enabled the company to raise its dividends in 2015 reflecting management confidence in future.
The financial performance of the company is reflected in two major distinct performance periods; during the first half of the year, and the other half of the year. In the first half of the year 2015, the company was able to make urgent actions in resetting the business by more focusing of the customer system. However, the company financial performance in terms of operations was weak in 2015. The second half of the year 2015, the company focused more on execution, an operation that led to positive results.
Looking at the MacDonald’s highly franchised model, comparable sales are considered significant in raising operating income as well as returns. In 2015 the Company’s global comparable sales increased by 1.5 percent driving a positive performance in various segments of the business in both third and fourth quarters. In international lead markets, the comparable sales increased by 0.5 percents though in the United States the comparable sales decreased by 3.0 percent. The report of 2015 financial statements indicated that comparable sales performance contributed positively except in France.
In the high growing markets, the comparable sales increased by 1.8 percent while for guest’s counts went down by 2.2 percent. This high comparable performance was attributed by good performance in China markets. However, the performance in Latin America, Japan, and the Middle East indicated negative.
Focusing on the pension and postretirement benefits of the company. First, there is a need to differentiate between pensions and post-retirement benefit. To start with, a pension refers to a contribution that an employee makes to the set plan. They include the benefit pension’s plans which include monetary payment an employee receives upon retirement. On the other hand, postretirement benefit refers to the benefits apart from pensions directed to employees during the time of their retirement years (Feldstein and Stephanie, 1981). These include insurance as well as medical plans. In Macdonald, pensions feature mostly on regular employers. In 2015 the introduction of 401 (k) feature enabled the employees to make pre-tax pension contributions that are matched in every pay period from Employee Ownership Plan. In addition, all employees’ current account balances, investment can be made by use of alternative investment methods which include future contributions.
In MacDonald’s the stakeholder’s scheme which has been offered by the Friends life, has been in establishment since 2001. The scheme provides diverse contribution levels mostly based on the age of the employee and service length of the employee. The age provides what the company requires as a company structure. For most of the employees working in the company who are under the age of 35, the minimum contribution is 3 percent of the total annual salary which is matched with a ratio of 1:1 up to the employer contribution of 4 percent.
Employees who are between the ages 35 and 54, their minimum annually contribution is 5 percent of the annual employee salary, the contributions are matched with that of the half of the total employee contribution. In most cases, employees working with a Company and have attained the age of 55, receive a ratio of 1:2 matched contributions with a maximum contribution of 10 percent of the annual employee salary.
To the employees who are auto-enrolled during the first month of the year, whether through stakeholder’s scheme receive many complaints from the employer and the pension contributions from the employee are based mainly on qualifying earnings. Therefore, based on this scheme, salaried employees working in Macdonald Company are always entitled to pension membership. However, in a case where one wants to increase annual contributions of 1 percent annually to 3 percent of the employee ‘annual basic salary can always do so.
In regard to the fiscal year of 2015, the MacDonald’s pension plan for retirees provided enough assets to cater for the foreseeable future obligations. The Company maintained that employees should do their investments responsibility. This was done to ensure returns on investment and assets of the fund would cater for all retirements plan for the future. In most cases, pension’s funds for retirees normally depend on new contributions from the new employees who are joining the scheme.
The future of Macdonald is uncertainty, and it is difficult to predict how the company will grow and rise. Therefore, the following are assumptions made to calculate pension benefits and other retiree’s benefits in a company: the price inflation is expected to 2 percent per annum in five consecutive years. Also, another assumption on pension savings is expected to rise at 5 percent per annum in the consecutive years in which majority of the Company’s asset is expected to concentrate at Level 3 categories.

References
Feldstein, S. and Stephanie, S. (1981). “Pension Funding, Share Prices and National Savings.” Journal of Finance: 801-824.
Coronado, Julia and Steven A. Sharpe. (2003) Did Pension Plan Accounting Contribute to a Stock Market Bubble?” BPEA (1): 323-359.
MacDonald Annual Report (2015), Available at: 2015_Annual_Report mcdonalds.pdf