Two companies McDonald\'s and Coach. collect data from online Select two compani
ID: 2755155 • Letter: T
Question
Two companies McDonald's and Coach. collect data from online
Select two companies in two different industries and do the following: Provide background information on the company and describe the industry in which the company operates in and its main products. Determine key macro economic factors in compacting each firm. List and describe the major competitors to the selected company. Evaluate each firm using potter's determinants of competition. Compute and interpret the financial ratios described for a five year period. Look at the trend in the ratios to determine if they are deteriorating or improving and compare them against peers or the industry: Current and quick ratios and net working capital Inventory turnover, fixed assets turnover and total assets turnover debt ratio and TIE. Gross profit margin and net profit margin and operating margin Roe and Roa Find beta, R squared, alpha and the residual standard deviation for each firm using Excel. Interpret the results and recommend which firm should be added to a well diversified portfolio. Use 60 months of return data for the calculations. Find the correlation between the two stocks and interpret. Estimate the required for each stock (SML) Estimate the sustainable growth rate (g) for each stock. Find it for 3 years and take an average. Evaluate the 5 and 10- years historic growth rate in earnings. Compare to sustainable growth method. Estimate the intrinsic value (price) of the two stocks using the 1) dividend discount model (DDM) approach and the 2) P/E multiplier approach. Make a buy or sell recommendation. Evaluate stock using value criteria of dividend yield and price to book. Use the Black-scholes model to find the value of a call option and the value of a put opion for each stockExplanation / Answer
a) McDonald's operates and franchises McDonald's restaurants which serve locally relevant food and drinks sold at various affordable price points in more than 100 countries. McDonald’s operating in the restaurant industry offers a substantially uniform menu although there is geographic adjustment to suit local customers taste. Menu includes hamburgers, cheese burgers, Big McChicken sandwiches, French fries, shakes and beverages.
Coach Inc. is a leading design house of New York with modern luxury accessories and lifestyle collections. Coach is one of the fine accessories brands in the US and international markets. Coach’s operating in premium accessories industry with product offerings include broad range of high quality leather, fabrics and materials as women's and men's bags, business cases,footwear,watches,weekend travel accessories,jewellery.COach offer multiple styles and product categories increasing accessories wardrobe.
b) McDonald’s results are affected by economic conditions which can impact customer’s disposable income and spending habits. The economic conditions can be affected by got economic interventions, inflation, wage control measures, interest rate, unemployment and taxation. Adverse changes in these factors can negatively affect eh results, for e.g. high unemployment can decrease spending levels which could affect the customers visiting restaurant and thus lower sales.
Coach Inc. results can be affected by a number of macro factors as spending levels, consumer confidence,unemployment,interest rates, raw materials cost and inflation. Consumer purchases of discretionary items such as Coach products tends to decline during periods of high unemployment, high interest rates and inflations levels when disposable income becomes lower.
c) Competitors McDonald’s: Doctor’s Associates Inc, Yum! Brands Inc.
Competitors Coach Inc: Dooney and Bourke Inc, MICHAEL KORS (USA) Inc, Kate Spade LLC
Porter’s analysis:
McDonald's
Coach Inc.
Threat of new Entrant
Easy access market and low start-up cost.e.g. Subways market penetration, Its high.
To start up a new brand significant capital expenditure is needed, a new player would find difficulty in achieving the brand and loyalty as of Coach, however new internet accessories business can make entry easily. Threat is moderate to low.
Degree of rivalry among competitors
Very competitive fast food indutry, competitve advertising capabilities, competition from established local food outlets and industry players. It’s high.
Intense competition from upcoming fashion companies, competitve accessories and handbags market, incresing private labellings.Its high.
Bargaining power of buyers
Customers should be kept satisfied with prices and food offerings as switching cost is low to other local fast food. It’s high.
Buyers can easily switch to other brands as Michael Cors, direct channel sales primarily (large no of buyers) and very low 10% is sold through wholesale channel therefore its moderate.
Threat of Substitutes
Fast food as pizza, coffee and other food items from subways and local food cuisines. It’s high.
Counterfeit products can pose a threat especially in emerging markets as china can dilute the value of the company hence it’s a serious threat to look into.
Bargaining power of suppliers
It’s low. Due to scale of the firm operations suppliers are happy and their Bargaining power is low.
Manufacturing of goods is done be large number of suppliers with no major supplier from across various geographies hence suppliers bargaining power is limited. Apart from few 1 or 2 exceptional suppliers which have bargaining power. It’s moderate.
d)
2010-12
4,369
2,925
110
2011-12
4,403
3,509
117
2012-12
4,922
3,403
122
2013-12
5,050
3,170
124
2014-12
4,186
2,748
110
2010-12
14,437
22,061
31,975
24,075
2011-12
16,319
22,835
32,990
27,006
2012-12
16,751
24,677
35,387
27,567
2013-12
17,203
25,747
36,626
28,106
2014-12
16,986
24,558
34,281
27,441
2010-12
17,341
451
7,473
2011-12
18,600
493
8,530
2012-12
20,093
517
8,605
2013-12
20,617
522
8,764
2014-12
21,428
571
7,949
2010-12
4,946
2011-12
5,503
2012-12
5,465
2013-12
5,586
2014-12
4,758
2010-12
14,634
2011-12
14,390
2012-12
15,294
2013-12
16,010
2014-12
12,853
2010-12
2011-12
2012-12
2013-12
2014-12
Current ratio and Quick ratio has been hovering around 1.5 with a dip in the recent year.These have almost remain the same over past 5 years.The turnovers Asset T/o and Inventory Turnover have shown improvements that means the firm is utilising its Asset more efficientely with improved inventory management.
Debt ratio for McDonald has been increasing over past 5 years with the ratio much lower than the industry average.The TIE has decreases over the past year but it remains healthy at almost 13-16 times.
The Net profit margin for the industry is 7.5% as compared to higher margins of the Mcdonald.However the margins have been dipping since last few years.
THe ROE for the McDonald has been around 35 % much higher than industry average of 24.8%.THe ROA for the McDonald has dipped a bit.
PE for McDonald has increased from 16 to 19 much lower than industry average while PB has been around 6 point something while industry average is negative.
2011-06
1,452
593
422
2012-06
1,805
718
504
2013-06
2,071
723
525
2014-06
1,855
813
526
2015-06
2,507
835
485
2011-06
1,135
582
2,635
4,159
2012-06
1,297
644
3,104
4,763
2013-06
1,377
695
3,532
5,075
2014-06
1,509
714
3,663
4,806
2015-06
1,283
733
4,667
4,192
2011-06
1,023
0
1,305
2012-06
1,111
0
1,512
2013-06
1,123
0
1,525
2014-06
1,242
0
1,120
2015-06
2,177
0
618
2011-06
881
2012-06
1,039
2013-06
1,034
2014-06
781
2015-06
402
2011-06
1,613
2012-06
1,993
2013-06
2,409
2014-06
2,421
2015-06
2,490
2011-06
2012-06
2013-06
2014-06
2015-06
Current ratio and Quick ratio has been icreasing in the recent years.The turnovers Asset T/o and Inventory Turnover have not shown improvements that means the firm is not utilising its Asset more efficientely with not so great inventory management.
Debt ratio for Coach has been decreasing over past years until it increased suddenly to all time high of .4664 with the ratio much lower than the industry average of .98.The interest expense is almost nil.
The Net profit margin for the industry is 9.6% as compared to higher margins of the Coach .However the margins have been dipping since last few years.
THe ROE for the Coach has been decreasing 54% to 16% in last 5 years but still much higher than industry average of 21.2%.THe ROA for the Coach has dipped from 33% to almost 9%.
PE for Coach has remained arounf 20 lower than industry average while PB has dipped from 11 to 3 while industry average is higher at 7.2.
McDonald's
Coach Inc.
Threat of new Entrant
Easy access market and low start-up cost.e.g. Subways market penetration, Its high.
To start up a new brand significant capital expenditure is needed, a new player would find difficulty in achieving the brand and loyalty as of Coach, however new internet accessories business can make entry easily. Threat is moderate to low.
Degree of rivalry among competitors
Very competitive fast food indutry, competitve advertising capabilities, competition from established local food outlets and industry players. It’s high.
Intense competition from upcoming fashion companies, competitve accessories and handbags market, incresing private labellings.Its high.
Bargaining power of buyers
Customers should be kept satisfied with prices and food offerings as switching cost is low to other local fast food. It’s high.
Buyers can easily switch to other brands as Michael Cors, direct channel sales primarily (large no of buyers) and very low 10% is sold through wholesale channel therefore its moderate.
Threat of Substitutes
Fast food as pizza, coffee and other food items from subways and local food cuisines. It’s high.
Counterfeit products can pose a threat especially in emerging markets as china can dilute the value of the company hence it’s a serious threat to look into.
Bargaining power of suppliers
It’s low. Due to scale of the firm operations suppliers are happy and their Bargaining power is low.
Manufacturing of goods is done be large number of suppliers with no major supplier from across various geographies hence suppliers bargaining power is limited. Apart from few 1 or 2 exceptional suppliers which have bargaining power. It’s moderate.
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