4. MCDONALD's Case Study In the cover of 10Q form of McDONALD'S CORPORATION (MCD) posted on August 10 2020, it shows that as of June 30, 2020, there were 744,102,514 shares of the registrant's common stock outstanding. On the latest trading day, the price of MCD stock closed at $218.0 per share. The first table is the 10Q balance sheet of MCD (the latest balance sheet date - 6/30/2020). The second table is the 10K statements of operations of MCD posted on Feb 26 2020 (latest fiscal year-2019). The third table is the 10K statements of cash flows of MCD (latest fiscal year - 2019). Based on the information above, compute: 1) The most recent Enterprise Value (EV") of MCD (NOTE: do not include lease liabilities) 2) The EV/ 2019 EBITDA and EV/ 2019 Revenue. Note: Depreciation and Amortization is embedded in one of the income statement items. 3) The industry average EV/Revenue multiple is 6.0x. Is the MCD's revenue multiple above or below industry average? 4) If the company were trading at the industry average multiple, what would be its price / share? 5) Extra credit. By just looking at how the company trades compared to peers, do you think that the company is under-valued or over-valued? What other analysis would you need to do to better understand if your initial conclusion is correct? (unaudited) June 30, 2020 December 31, 2019 3.255.7 2.852.6 42.6 458.5 6,609,4 898.5 2,224.2 50.2 385.0 3,557.9 1,278.1 2,671.9 2,547.2 6,497.2 13.002.3 1,270.3 2,677.4 2.584.0 6,531.7 13,261.2 39.137.4 (15.307.4) 23.830.0 49,938.9 39,050.9 (14,890.9) 24.160.0 47,510.8 s S S 1,000.0 S In millions, except per share data Assets Current assets Cash and equivalents Accounts and notes receivable Inventories, at cost, not in excess of market Prepaid expenses and other current assets Total current assets Other assets Investments in and advances to affiliates Goodwill Miscellaneous Total other assets Lease right-of-use asset, net Property and equipment Property and equipment, at cost Accumulated depreciation and amortization Net property and equipment Total assets Liabilities and shareholders' equity Current liabilities Short-term borrowings Accounts payable Lease liability Income taxes Other taxes Accrued interest Accrued payroll and other liabilities Current maturities of long-term debt Total current liabilities Long-term debt Long-term lease liability Long-term income taxes Deferred revenues - initial franchise fees Other long-term liabilities Deferred income taxes Shareholders' equity (deficit) Preferred stock, no par value; authorized - 165.0 million shares, issued - none Common stock, S.Ol par value; authorized - 3.5 billion shares, issued - 1,660.6 million shares Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Common stock in treasury, at cost; 916.5 and 914.3 million shares Total shareholders' equity (deficit) Total liabilities and shareholders' equity (deficit) 538.4 681.2 302.8 247.4 316.1 988.2 621.0 331.7 247.5 337.8 1,035.7 59.1 1,073.6 3.086.6 7,246.1 34,675.6 12,478.9 1,871.3 664.2 916.7 1,549.2 3,621.0 34,118.1 12,757.8 2,265.9 660.6 979.6 1,318.1 16.6 7,780.0 52,660.8 (2.806.3) (67,114.2) (9,463.1) 49.938.9 16.6 7,653.9 52,930.5 (2,482.7) (66,328.6) (8,210.3) 47,510.8 S Operating results 2019 2017 2018 Increase (decrease) Increase (decrease) Amount Amount Amount $ 9,421 11,656 21,077 (6%) 6 0 $ 10,013 11,012 21,025 (21%) 9 (8) $ 12,719 10.101 22,820 Dollars and shares in millions, except per share data Revenues Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues Operating costs and expenses Company-operated restaurant expenses Franchised restaurants occupancy expenses Selling, general & administrative expenses Other operating income) expense, net Total operating costs and expenses Operating income Interest expense Nonoperating (income) expense, net Income before provision for income taxes Provision for income taxes Net Income Earnings per common share-diluted Weighted average common shares outstanding, diluted nim Nor meaningful 7,761 2,201 2,229 (184) 12,007 9,070 1,122 (70) 8,018 1,993 $ 6,025 $ 7.88 (6) 12 1 22 (2) 3 14 n/m 3 8,266 1,973 2,200 (237) 12,202 8,823 981 (21) 10 (1) 80 (8) (8) 7 (56) (9) 10,410 1,789 2,231 (1,163) 13,267 9,553 922 58 26 5 7,816 1,892 $ 5,924 $ 7.54 8,573 3,381 $ 5,192 $ 6.37 2% 5% 14% 18% 764.9 (3%) 785.6 (4%) 815.5 Years ended December 31, 2019 2018 2017 6,025.4 $ 5,924.3 $ 5,192.3 1,617.9 149.7 109.6 (128.2) 49.2 1,482.0 102.6 125.1 (308.8) 114.2 1,363.4 (36.4) 117.5 (1,155.8) 1,050.7 27.0 128.8 (26.8) 173.4 (3.9) 8,122.1 (479.4) (1.9) 129.4 (33.4) (87.4) 6,966.7 (340.7) (37.3) (59.7) (396.4) (146.4) 5,551.2 In millions Operating activities Net income Adjustments to reconcile to cash provided by operations Charges and credits: Depreciation and amortization Deferred income taxes Share-based compensation Net gain on sale of restaurant businesses Other Changes in working capital items: Accounts receivable Inventories, prepaid expenses and other current assets Accounts payable Income taxes Other accrued liabilities Cash provided by operations Investing activities Capital expenditures Purchases of restaurant and other businesses Sales of restaurant businesses Proceeds from sale of businesses in China and Hong Kong Sales of property Other Cash provided by (used for) investing activities Financing activities Net short-term borrowings Long-term financing issuances Long-term financing repayments Treasury stock purchases Common stock dividends Proceeds from stock option exercises Other Cash (used for) financing activities Effect of exchange rates on cash and equivalents Cash and equivalents increase (decrease) Change in cash balances of businesses held for sale Cash and equivalents at beginning of year Cash and equivalents at end of year (2,393.7) (540.9) 340.8 (2,741.7) (101.7) 530.8 (1,853.7) (77.0) 974.8 1,597.0 166.8 (245.9) 562.0 151.2 (628.5) (3,071.1) 160.4 (302.9) (2,455.1) 799.2 4,499.0 (2,061.9) (4,976.2) (3,581.9) 350.5 (23.5) (4,994.8) (23.7) 32.5 95.9 (1,050.3) 3,794.5 4,727.5 (1,759.6) (1,649.4) (5,207.7) (4.685.7) (3,255.9) (3,089.2) 403.2 456.8 (20.0) (20.5) (5,949.6) (5,310.8) (159.8) 264.0 (1,597.8) 1,066.4 174.0 2,463.8 1,223.4 866.0 $ 2,463.8 866.0 898.5 $ $ 4. MCDONALD's Case Study In the cover of 10Q form of McDONALD'S CORPORATION (MCD) posted on August 10 2020, it shows that as of June 30, 2020, there were 744,102,514 shares of the registrant's common stock outstanding. On the latest trading day, the price of MCD stock closed at $218.0 per share. The first table is the 10Q balance sheet of MCD (the latest balance sheet date - 6/30/2020). The second table is the 10K statements of operations of MCD posted on Feb 26 2020 (latest fiscal year-2019). The third table is the 10K statements of cash flows of MCD (latest fiscal year - 2019). Based on the information above, compute: 1) The most recent Enterprise Value (EV") of MCD (NOTE: do not include lease liabilities) 2) The EV/ 2019 EBITDA and EV/ 2019 Revenue. Note: Depreciation and Amortization is embedded in one of the income statement items. 3) The industry average EV/Revenue multiple is 6.0x. Is the MCD's revenue multiple above or below industry average? 4) If the company were trading at the industry average multiple, what would be its price / share? 5) Extra credit. By just looking at how the company trades compared to peers, do you think that the company is under-valued or over-valued? What other analysis would you need to do to better understand if your initial conclusion is correct? (unaudited) June 30, 2020 December 31, 2019 3.255.7 2.852.6 42.6 458.5 6,609,4 898.5 2,224.2 50.2 385.0 3,557.9 1,278.1 2,671.9 2,547.2 6,497.2 13.002.3 1,270.3 2,677.4 2.584.0 6,531.7 13,261.2 39.137.4 (15.307.4) 23.830.0 49,938.9 39,050.9 (14,890.9) 24.160.0 47,510.8 s S S 1,000.0 S In millions, except per share data Assets Current assets Cash and equivalents Accounts and notes receivable Inventories, at cost, not in excess of market Prepaid expenses and other current assets Total current assets Other assets Investments in and advances to affiliates Goodwill Miscellaneous Total other assets Lease right-of-use asset, net Property and equipment Property and equipment, at cost Accumulated depreciation and amortization Net property and equipment Total assets Liabilities and shareholders' equity Current liabilities Short-term borrowings Accounts payable Lease liability Income taxes Other taxes Accrued interest Accrued payroll and other liabilities Current maturities of long-term debt Total current liabilities Long-term debt Long-term lease liability Long-term income taxes Deferred revenues - initial franchise fees Other long-term liabilities Deferred income taxes Shareholders' equity (deficit) Preferred stock, no par value; authorized - 165.0 million shares, issued - none Common stock, S.Ol par value; authorized - 3.5 billion shares, issued - 1,660.6 million shares Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Common stock in treasury, at cost; 916.5 and 914.3 million shares Total shareholders' equity (deficit) Total liabilities and shareholders' equity (deficit) 538.4 681.2 302.8 247.4 316.1 988.2 621.0 331.7 247.5 337.8 1,035.7 59.1 1,073.6 3.086.6 7,246.1 34,675.6 12,478.9 1,871.3 664.2 916.7 1,549.2 3,621.0 34,118.1 12,757.8 2,265.9 660.6 979.6 1,318.1 16.6 7,780.0 52,660.8 (2.806.3) (67,114.2) (9,463.1) 49.938.9 16.6 7,653.9 52,930.5 (2,482.7) (66,328.6) (8,210.3) 47,510.8 S Operating results 2019 2017 2018 Increase (decrease) Increase (decrease) Amount Amount Amount $ 9,421 11,656 21,077 (6%) 6 0 $ 10,013 11,012 21,025 (21%) 9 (8) $ 12,719 10.101 22,820 Dollars and shares in millions, except per share data Revenues Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues Operating costs and expenses Company-operated restaurant expenses Franchised restaurants occupancy expenses Selling, general & administrative expenses Other operating income) expense, net Total operating costs and expenses Operating income Interest expense Nonoperating (income) expense, net Income before provision for income taxes Provision for income taxes Net Income Earnings per common share-diluted Weighted average common shares outstanding, diluted nim Nor meaningful 7,761 2,201 2,229 (184) 12,007 9,070 1,122 (70) 8,018 1,993 $ 6,025 $ 7.88 (6) 12 1 22 (2) 3 14 n/m 3 8,266 1,973 2,200 (237) 12,202 8,823 981 (21) 10 (1) 80 (8) (8) 7 (56) (9) 10,410 1,789 2,231 (1,163) 13,267 9,553 922 58 26 5 7,816 1,892 $ 5,924 $ 7.54 8,573 3,381 $ 5,192 $ 6.37 2% 5% 14% 18% 764.9 (3%) 785.6 (4%) 815.5 Years ended December 31, 2019 2018 2017 6,025.4 $ 5,924.3 $ 5,192.3 1,617.9 149.7 109.6 (128.2) 49.2 1,482.0 102.6 125.1 (308.8) 114.2 1,363.4 (36.4) 117.5 (1,155.8) 1,050.7 27.0 128.8 (26.8) 173.4 (3.9) 8,122.1 (479.4) (1.9) 129.4 (33.4) (87.4) 6,966.7 (340.7) (37.3) (59.7) (396.4) (146.4) 5,551.2 In millions Operating activities Net income Adjustments to reconcile to cash provided by operations Charges and credits: Depreciation and amortization Deferred income taxes Share-based compensation Net gain on sale of restaurant businesses Other Changes in working capital items: Accounts receivable Inventories, prepaid expenses and other current assets Accounts payable Income taxes Other accrued liabilities Cash provided by operations Investing activities Capital expenditures Purchases of restaurant and other businesses Sales of restaurant businesses Proceeds from sale of businesses in China and Hong Kong Sales of property Other Cash provided by (used for) investing activities Financing activities Net short-term borrowings Long-term financing issuances Long-term financing repayments Treasury stock purchases Common stock dividends Proceeds from stock option exercises Other Cash (used for) financing activities Effect of exchange rates on cash and equivalents Cash and equivalents increase (decrease) Change in cash balances of businesses held for sale Cash and equivalents at beginning of year Cash and equivalents at end of year (2,393.7) (540.9) 340.8 (2,741.7) (101.7) 530.8 (1,853.7) (77.0) 974.8 1,597.0 166.8 (245.9) 562.0 151.2 (628.5) (3,071.1) 160.4 (302.9) (2,455.1) 799.2 4,499.0 (2,061.9) (4,976.2) (3,581.9) 350.5 (23.5) (4,994.8) (23.7) 32.5 95.9 (1,050.3) 3,794.5 4,727.5 (1,759.6) (1,649.4) (5,207.7) (4.685.7) (3,255.9) (3,089.2) 403.2 456.8 (20.0) (20.5) (5,949.6) (5,310.8) (159.8) 264.0 (1,597.8) 1,066.4 174.0 2,463.8 1,223.4 866.0 $ 2,463.8 866.0 898.5 $ $