Comparison of Burger King and Mc Donalds

Accountancy
December 13, 2014

TABLE OF CONTENTS
Introduction

Situational Analysis

SWOT Analysis
Competitor Analysis
Consumer Analysis
Segmentation, Targeting, and Positioning

Segmentation
Targeting
Positioning
Proposal

10

Recommendation
Rationale
Marketing Mix

11

Price
Product
Promotion
Public Relations
Place
Implementation
Financial Analysis

15

Sales Trends
Forecasts
Profitability
Conclusion

18

Exhibits

19

Reference List

22

INTRODUCTION

PROFITABILITY ANALYSIS

ASSET ANALYSIS

Both McDonalds and Burger King have different accounts that they have stated
in their balance sheets1. In order to get further details about each, further information was
extracted from the notes. Below we will compare some current assets such as inventory
and receivables; and other assets such as Property & Equipement and Goodwill.
Inventory
Burger King includes its inventory in prepaids and other current assets line on the balance
sheet. For it, inventories are stated at the lower of cost (first-in, first-out) or net realizable
value, and consists primarily of food items and paper supplies. McDonalds on the other
hand has a line for inventory on its balance sheet which are recorded at cost and not
excess of market. But other than that, McDonalds does not disclose any other
information about their inventories. Because of this, it is very difficult to compare their
inventories as they may price their inventories differently which leads to a different total

1 McDonalds and Burger Kings balance sheets are shown in Exhibit 1

at the end of this section
3

asset number. At the end of December 31, 2013, McDs and BKs inventory balances
were $123.7 MM and $1.2 MM respectively.

Inventory Turnover
The Inventory Turnover ratio will provide details as to how many times a year a
company needs to order new inventory. The number of times a store replenishes its
inventory demonstrates how quickly a company is making a sale and profit from its
inventory.
Inventory Turnover =
McDonalds =

cost of goods sold

average inventory

6361.3
[(123.7+121.7)/2]

= 51.84

Burger King =

70.6
[(1.2+6.7)/2]

17.87
As evident from the ratio above, McDonalds has much higher inventory turnover
than Burger King which demonstrates that McD is selling its food items at a faster rate
than BK. However it is important to note that both companies do not have the same
number of restaurants or the same type of information disclosed.
Receivables
Another account that can affect the total assets of a company is receivables. Both
the companies show one line of receivables on the balance sheet but they include
different accounts. McDonalds report Accounts and Notes Receivable together but does
not disclose what makes up the number to what it is. Similarly, Burger King reports Trade
and Notes Receivables, Net but unlike McD, it provides the different accounts separately
in the notes along with Allowance for doubtful accounts information. For both companies
notes receivable represents loans made to franchises, sales of property and other trade
receivables activities with franchises.

Property and Equipment

Another asset account to focus on is property and equipment because it not only
affects the total assets, but also affects total liabilities because of depreciation expenses.
McDonalds and Burger King, both report property and equipment at the cost it took
them to purchase it less accumulated depreciation and amortization. Furthermore, each
company utilizes straight-line method based on useful lives of the assets to record
depreciation. The Property and Equipment, net of accumulated depreciation for
McDonalds and Burger King was $25,747.3MM and $801.5MM respectively at the end
of December 31, 2013.
A difference between McDonalds and Burger Kings reporting styles for property
and equipment is the length of time estimated for useful life. They both estimate the
useful lives of building till up to 40 years. McD estimates machinery and equipment lives
to be 3-12 years while BK estimates it to be up to 18 years. The useful life chosen will
affect the amount the company records as depreciation expense.
One other similarity between the two companies is that they both list out the
different components that make up their Property and Equipment along with their value
and estimated useful life, if applicable, in the notes.
Goodwill
Goodwill represents the excess of cost over the net tangible assets and identifiable
intangible assets of acquired restaurant businesses. McDonalds goodwill primarily
results from purchases of its restaurants from franchisees and ownership increases in
subsidiaries or affiliates, and it is generally assigned to the reporting unit expected to
benefit from the synergies of the combination. McDonalds goodwill is recorded at

$2872.7MM at the end of December 31, 2013; whereas Burger King was only
at$630MM. Both companies write-off their goodwill when the restaurant they purchased
is sold based on the relative fair value of the business sold to the reporting unit after a
certain period. The period is 24 months for McDonalds and 6 months for Burger King.
Furthermore, both the companies conduct goodwill impairment testing in the fourth
quarter of each year.
Now that the assets of both the companies have been analyzed for their
similarities and differences in how they report them on the balance sheet and what is
counted towards each asset, several ratios can be computed.
Operating Ratio
Asset Turnover Ratio
In analyzing the utilization and age of long-term assets, it is important to consider
the Asset Turnover Rate.
Asset Turnover Rate =

McDonalds =

Net Sales
averge total assets

18874.2
(36626.3+35386.3)/2

1146.3
(5828.5+5564)/ 2

= 0.781

Burger King =

= 0.201

These results would imply that McDonalds is more efficient in managing its total
assets.

Return on Assets (ROA)

Return on Assets (ROA) is a fair calculation of the profitability of a company,
relative to its assets.
ROA =

Net Income
Total Assets

McDonalds =

5585.9
= 15.25%
36636.3

Burger King =

233.7
5828.5

= 4.01%

This is the rate at which these companies can generate profit on $1 in assets. As
seen from the numbers above, McDonalds generate a higher return on its assets. This is
also not surprising as McDonalds is significantly larger in size than Burger King.
LIABILITIES ANALYSIS
OVERALL ANALYSIS OF COMPANY
CONCLUSION
EXHIBIT 1: CONSOLIDATED BALANCE SHEET
McDonalds Balance Sheet as of December 31, 2013

Burger Kings Balance Sheet as of December 31, 2013

8
Operating Profit Rate is based on Nestles
Nestls global profit rate of the prepared dishes in
2013 annual report
Non-Operating Expenses are not considered.

EXHIBIT 2: CONSOLIDATED STATEMENT OF INCOME

Company 1

Company 2

EXHIBIT 3: CONSOLIDATED STATEMENT OF CASH FLOWS

Company 1

Company 2

10

REFERENCES

11