MCDONALD'S UK FRANCHISE FINANCIAL MANAGEMENT

McDonald's UK Franchise Financial Management



McDonald's UK Franchise Financial Management

Task 1:

Part 1: Cash Flow Forecast for McDonald

Cash flow forecasting--projecting cash flows in the short term (up to one year)--is an important financial management tool. If it is not done effectively and regularly, companies can lose substantial amounts of cash, as well as opportunity costs. If it's so important, why can't forecast be done well? Good question. First, every situation is different: Companies of similar size like McDonald can have substantially different cash flows in terms of transaction size, the frequencies or timing and the method or location where the cash flow occurs. In other words, forecasting cash flows must be tailored to the McDonald, a process that can be time-consuming (Stephen A. Ross, Randolph W. Westerfield & Bradford D. Jordan, 2006).

Another factor is the corporate climate. Experience shows that McDonald with large amounts of excess cash and virtually no short-term debt place less importance on cash forecasting than those with substantial short-term borrowing activities. This makes sense, since McDonald that borrow have a finite amount of short-term reserves their short-term credit capacity while those with short-term investments do not really see such limits.

For McDonald we used Quantitative methods which come in two main types: time-series methods and explanatory methods. Time-series methods make forecasts based purely on historical patterns in the data. Say you want to forecast site visitors over the next few weeks. Time-series methods only use historical site visit data to make that forecast (Pogue, 2004).

Cash Flow Forecast for McDonald

Current Quarter Feb 09

Next Quarter Mar 10

Current Year Feb 09

Next Year Feb 10

Average Estimate

$1.01

$0.95

$3.95

$4.39

Number of Analysts

20

7

22

19

High Estimate

$1.05

$1.00

$4.00

$4.52

Low Estimate

$0.97

$0.91

$3.85

$4.20

Year Ago EPS

$0.87

$0.83

$3.66

$3.95

Growth Rate

16%

14.46%

8.01%

11.08%

Part 2: Proposal for Obtain Sources Of Funds

For anyone keen on enjoying the business opportunity presented by obtaining a franchise from the McDonald's group, there are two options available and each has varying financial implications. The first option allows the investor to buy an already existing restaurant. This could be a restaurant run by McDonald's or by another operator. Alternatively, a new investor could start a new restaurant. Depending on the option taken, the cost for McDonald's franchise can vary considerably (Mustafa M. 2006).

Where an investor acquires an already existing restaurant, McDonald's requires that the purchaser makes a down payment equivalent to 25% of the restaurant's cost. For those purchasing new restaurants, a down payment of 40% is required. These two requirements and the fact that premise costs will vary from one location to another makes the actual cost of obtaining franchises vary considerably (Jill & Roger Hussey, 1994).

While the down payment percentages required should give a general guidance on the cost of a McDonald's franchise, the company provides more specific requirements of the financial requirements for franchise seekers. McDonald's requires that those seeking franchises be able to raise a minimum of $300,000 which is estimated to be adequate to get the new restaurant going. In addition to being able to raise this minimum, people with the ability to raise more funds ...