mcd finance

8/6/2019 Mcd Finance

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Finance at McDonalds

Customer Services

Marketing

Finance

Franchising

Stock Control

Recruitment & Training

INTRODUCTIONAlthough the realm o accounting and nance has otenbeen viewed as dull bean counting, in todays modern andcompetitive business environment, the nance departmentshould be at the heart o any company, encompassing a

variety o unctions that go beyond its traditional nancialreporting role.

While it is still a priority or accountants to ensurea companys nancial statutory accounts meet legalrequirements, dynamic companies such as McDonalds haveshited the ocus o their accounting and nance unction

to additionally include the evaluation o past perormanceand appraisal o uture opportunities, helping to ensure thecompany maximises its strategic capabilities.

McDonalds Restaurants UK Limited, a wholly ownedsubsidiary o the U.S. parent company, opened its rst UKrestaurant in Woolwich in 1974. There are now 1,200restaurants operating in the UK which, despite representingonly 4% o the total number o McDonalds restaurantsworldwide, contribute 7% o global prots, making theUK a very important nancial market or McDonalds

shareholders.

Careersat McDonalds

Commercial Finance

Vice President ofFinance

Tax &Treasury

Corporate Accounts

CompanyOwned

Restaurants

FranchisedRestaurants

PayrollAccounting

Centre

ExecutiveReporting

& Real EstateAccounting

Supporting Operations

UK Accounting & Finance Departments

McDonalds understands the value o an integrated accounting and nance unction, extendingrom the restaurant foor up to the board o directors. Each individual McDonalds restaurantis structured as an independent business, with restaurant management responsible or itsnancial perormance, supported by the centralised Accounting & Finance department.

DEPARTMENT STRUCTURE & FUNCTIONMcDonalds Finance Department has two key areas o responsibility: nancial reporting andmanagement accounting. Although each o these unctions has dierent priorities, working

together ensures the best nancial position or the company now and or the uture.


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Financial ReportingFinancial reporting looks at historical perormance with theprimary responsibility o the Corporate Accounts departmentbeing the preparation o annual nancial statements andreporting McDonalds monthly results to their parent companyin the U.S. Several specic unctions are in place in order toachieve these requirements:

A centralised accounting centre is responsible orprocessing all accounts receivable and payable

transactions, banking income, managing working capitaland also or the maintenance o the xed asset registers.

The accounting centre provides day-to-day support to everyMcDonalds restaurant. Treasury and tax experts ensure compliance with tax laws

and make sure the company has sucient cash fow andappropriate nance in place in order to meet businessneeds.

Payroll sta are responsible or the accounting andpayment o wages to all 68,000 sta.

Management AccountingThe Commercial Finance department has a predominantlyorward-looking ocus, using management accounting toanalyse past nancial perormance in order to project andimprove uture results and aid commercial decision-making.Key to the decision making process is inormation about ourcompetitors and the market environment. This is provided by

the McDonalds Business Strategy & Intelligence departmentwhich specialises in internal and external data collection, orexample consumer research.

The Commercial Financeteam helps dene andmeasure several key targetsknown as Key PerormanceIndicators (KPIs) whichMcDonalds must achievein order to succeed in itsbusiness strategy. Although

these indicators are bothnancial and non-nancial toensure a balanced scorecardapproach, the Commercial

Finance team concentrateson the results o the nancialKPIs. (See examples o theselater on.)


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Proft rom

Restaurant SalesSales 100Food & Paper (0)Labour (0)Advertising (5)Maintenance ()Utilities ()Other (2)

Proft 30

HOW DOES MCDONALDS

MAKE A PROFIT?McDonalds has two sources o prot:

Sales made by company-owned restaurants Rental and royalty income rom ranchised restaurants.

Restaurant Sales

McDonalds retains all o the prot earned by company-ownedrestaurants. An example Prot & Loss Statement or arestaurant is shown let and highlights how ood and labour

constitute a restaurants largest costs.

In addition to variable costs, which increase or decreasedepending on the level o sales, McDonalds also incurs costs

that are largely xed, or example utilities and advertising,which need to be paid or even beore the restaurant makesany sales.

Increasing sales and controlling costs are undamental toensuring the prot o each restaurant is either maintained orincreased.

Franchise Rental & Royalty Income

The owner o each ranchised restaurant, known as theranchisee, keeps all o the prot they make through salesater paying McDonalds a royalty or trading under the brandname and rent or operating in a McDonalds owned property.

The benet to McDonalds o operating ranchised restaurantsis that these restaurants guarantee a stream o incomeor McDonalds at a reduced level o risk while enabling thecompany to maintain a single brand presence. The risk toMcDonalds is reduced because much o it is borne by theFranchisee. The Franchising Accounts team works closelywith ranchisees to provide the support they require to grow

their protability.


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WHAT DOES MCDONALDS DO WITH ITS PROFITS?It is the responsibility o

the senior management atMcDonalds to reinvest theprots made by the companyin order to generate uturecash fows and returns or

the shareholders. Whetherthis is done by building newrestaurants, reinvesting inexisting restaurants, payingo debt to reduce nancing

costs or paying a dividend toshareholders, their decisionswill be based on nancialappraisals carried out by theMcDonalds Finance team.

The investment strategy o McDonalds UK has changednotably over the last decade. During the 1990s, McDonaldsactively opened a large number o restaurants in order

to grow market presence and increase market share. Inrecent years, however, McDonalds has taken a much more

consolidated approach by ocusing on ewer restaurantopenings and instead investing in the re-imaging o its currentestate. This investment strategy is intended to maintain

the perception o McDonalds as a modern, progressivecompany and enable us to upgrade the customer experienceand maintain market share in an ever-increasing competitiveenvironment.

Re-Imaging

Beore: Ater:

Open New

Restaurants

Re-Invest in

Existing

Restaurants

Reduce

Borrowings

Pay

Dividend

Restaurant generates cash

How should this cash be used?


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FINANCIAL TARGETS & MEASURESA key role o the McDonalds nance team is to helpormulate relevant targets or the business and reportactual perormance against these targets. Analysing thisdata allows us to highlight areas where improvementsmight be made within the business. As with all McDonaldsperormance analysis, nancial measures are consideredalongside non-nancial measures, and in consideration o long-

term eects, so as to evaluate the activity rom a balancedposition.

Key Perormance Indicators include:

Comparable Sales GrowthMeasuring increased demand and market expansion isdone by comparing like-or-like sales, year-to-year, day-to-day.McDonalds breaks this down urther into the comparablesales or dierent areas o the business so as to identiyareas o sales growth opportunity and enable it to adaptquickly to changes in the market. For example, comparing:

Sales at dierent times o the day Sales at restaurants located near each other Sales o specic products over time

Prot Growth

Increasing the bottom line prot in the long-term throughsales growth and improved eciency in cost management.

Return on Investment

McDonalds is evaluated by its shareholders on how wellit invests its money. Shareholders require a certain levelo return which means it is important or McDonalds to

ocus on making decisions that satisy and maximise thisreturn. For each project undertaken, the potential return oninvestment (the estimated prot return as a percentage o

the initial capital investment) is an important measure used bymanagement in considering the viability o the project.

There are specic targets or McDonalds larger capitalinvestments, such as new restaurant openings which mustachieve a 20% return over a 10 year period and re-imaginginvestments, which must achieve a 20% return over a 5 yearperiod.

ROI =Annual Proft

Investmente.g.I McDonalds pay15,000 or a shakemachine and therestaurant sell 20,000milkshakes with a prot o10p on each, the returnon investment is :

= 13.3%

10P X 20,000

15,000

Return onInvestment


6/62008 McDonalds Corporation

All trademarks are the property o McDonalds Corporation and its aliates


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SUMMARYAn ecient accounting and nance unction is essential to any business. Within McDonalds,

the nance team plays a key role in ensuring the company generates sucient unds in orderto maximise shareholder wealth. The nance department is involved in all aspects o thebusiness and contributes signicantly to the success o McDonalds in what is both an excitingand challenging unction.

For more inormation visit:www.makeupyourownmind.co.ukwww.mcdonalds.co.uk

GlossaryAccounts Payable:money owed to suppliers outside thebusiness or goods or services receivedon credit, booked on the balance sheetas creditors. A nance department willhave a dedicated branch to manage theiraccounts payable.

Accounts Receivable:

money due to the company rom outsideparties or goods or services providedon credit, booked on the balance sheetas debtors. A nance department willhave a dedicated branch to manage theiraccounts receivable.

Balance Scorecard:an approach to perormancemeasurement that seeks to go beyond theclassic nancial measures, recognisingthat the inclusion o non-nancial measureswill give a more rounded and accurateevaluation o perormance.

Talking points1. Why does McDonalds need to report on money received into the business and money paid out o the business?

2. What type o nancial support do McDonalds restaurants need every day?

. How does McDonalds invest their money and why do they expect a return on investment?

4. What is cash fow? Why is it important to know where money is coming rom and going to?

5. What are the responsibilities o the payroll department?

6. How does McDonalds make a prot?

7. What actors make a dierence to the prot that McDonalds earn?

8. Why is it important or McDonalds to make a prot?

9. Why might McDonalds need to borrow money?

Dividend:payments that are made by a company toits shareholders. When a company earns aprot they can choose to retain those unds,to re-invest the unds back into the business,or they can return it to the shareholderso the company as a cash dividend on theircontinued investment in the company.

Fixed Asset Register:a list o the equipment, xtures and ttingswhich are currently employed by eachrestaurant to generate sales. It records theassets original cost and their value today

ater natural wear and tear which is knownas depreciation.

Franchisees:persons licensed to trade using a particularbrand name and agreed operating systems,who in return pay a royalty ee and take ashare o revenues made.

KPIs (Key Perormance Indicators):these are measurements, both nancial andnon-nancial, set by management to evaluatethe companys perormance in areas o thebusiness that are deemed critical to excel atin order to outperorm competition.

Statutory Accounts:nancial statements that, by legalrequirement, all limited companies mustproduce annually and make publiclyavailable. These include a Prot & LossStatement and a Balance Sheet Reportprepared to a standard ormat and veriedby external auditors.

Strategy:a dened business plan o action, includingspecication o resources, that is requiredto be ollowed to ensure successulachievement o an overall goal.

Treasury:a unction o a companys nancedepartment that is responsible orimproving and maintaining the nancialstanding o the business. Treasuryemployees ensure that suitable types andamounts o unds are being used to nanceshort and long-term business activity. Theyalso perorm risk management to reducea companys exposure to currency andoreign exchange risk.

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