Red Flag Analysis

Red Flag Analysis

Accounting Opinion: Independent public accounting firm expressed an unqualified opinion on McDonald's, which shows the internal controls are effective and financial statements are fair. Therefore, investors should be confident in investing in McDonald's.

Subsequent Events: There are debt issuances in Feb 2012 which may add risk to the company.

Nonrecurring income: In 2009, McDonald's sold its minority ownership in Redbox Automated Retail, LLC to Coinstar, Inc. As a result of the transaction, the Company recognized a nonoperating pretax gain of 94.9 million.

FX exposure and translation: As is shown in 10K, the functional currency of operations outside the US is the respective local currency. Therefore, the FX rate fluctuation will not affect operations in foreign countries.

Investments: McDonald's uses foreign currency denominated debt and derivative instruments to mitigate the impact of interest rates and FX fluctuations. Instruments such as interest rate swaps, foreign currency forwards and foreign currency options are used to hedge risks. Meanwhile, the company also enters into certain derivatives that are not designated as hedging instruments.

Income Recognition: The Company's revenues consist of sales by Company-operated restaurants and fees from franchised restaurants. Sales by Company-operated restaurants are recognized on a cash basis. Revenues from franchised restaurants based on a percent of sales. Continuing rent and royalties are recognized in the period earned. Because the income recognition methods are different, investors should pay attention to them.

Total Current Liability: There is a significant fall in total current liability from 2007 to 2008, which indicates the company may have refinanced their debts.

Summary: There are no major risks in McDonald's. The company is well operated. Therefore, McDonald's is very attractive to investors.

Trend and Ratio Analysis

Profitability: From Gross Margin, Net Profit Margin, ROA and ROE graph, we can