Exercise 4 A&B – Perform a Financial Ratio Analysis for McDonald’s

 Exercise 4A: Perform a Financial Ratio Analysis for McDonald’s 

Financial ratio analysis is one of the best techniques for identifying and evaluating internal strengths and weaknesses. Potential investors and current shareholders look closely at firms’ financial ratios, making detailed comparisons to industry averages and to previous periods of time. Financial ratio analyses provide vital input information for developing an IFE Matrix.

Note along the bottom row of the strategic planning template at  www.strategyclub.com  there is an icon Financial Ratios and also an icon Projected Financial Ratios. The template will thus calculate these ratios and give you the percentage change from 1 year to the next. However, as you know, ratios are calculated based on financial statements, so it is important in preparing a comprehensive strategic plan using the template to convert your company’s existing financial statements into the template format. This is well worth the effort and is explained near the end of this chapter.

Instructions

. Step 1:  Using the resources listed in Table 4-8, find as many of McDonald’s financial ratios as possible. Record your sources. Report your research to your classmates and your professor.

. Step 2: Given the Template Considerations for Financial Ratios provided near the end of this chapter, try to convert McDonald’s actual (most recent) financial statements into the template format, and get the template to then calculate associated financial ratios and changes year-over-year.

Exercise 4B: Develop an IFE Matrix for McDonald’s

Purpose

This exercise will give you experience in developing an IFE Matrix. Identifying and prioritizing factors to include in an IFE Matrix fosters communication among functional and divisional managers. Preparing an IFE Matrix allows managers to articulate their concerns and thoughts regarding the business condition of the firm. This results in an improved collective understanding of the business.

Instructions

. Step 1:  Get familiar with the template at the  www.strategyclub.com website. You can click on IFE Matrix and use the template to save immense time in completing this exercise. Be mindful, however, that the template does not itself access the internet to find key strengths and weaknesses. You need to do that and then enter that information into the template. The template is widely used by companies (and students) in preparing an IFE Matrix.

. Step 2: Join with two other individuals to form a three-person team. Develop a team IFE Matrix for McDonald’s. Use information from Exercise 1B from Chapter 1.

. Step 3:  Compare your team’s IFE Matrix to other teams’ IFE matrices. Discuss any major differences.

. Step 4:  What strategies do you think would allow McDonald’s to capitalize on its major strengths?  What strategies would allow McDonald’s to improve on its major weaknesses?

Explanation & Answer

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