Review of Financial Statements Essay
Review of Financial Statements
Financial statements are essential accounting tools which include balance sheets, cash flow statements, and income statements that provide information on a company’s past and present financial history. Information on financial statements can be used by any number of public and private entities to determine if an organization’s financial status is healthy. Burger King and McDonald’s are two organizations that use financial statements in conducting business.
Further, this paper will discuss the financial statements of each company, the firms which audit each companies financial statements, and define accounting concepts, terminologies, and transactions used in the financial statements. Additional information will provided regarding when McDonald’s and Burger King were established and what product and services they provide to the public.
Overview of Organizations
McDonalds first opened its doors in 1940 introducing the concept of the “speedee service system” offering french fries, hamburgers, and shakes to satisfy the hungry customer quickly at a low price. Over the next 65 plus years the McDonalds menu has changed from just french fries and hamburgers to salads, wraps, chicken nuggets and many more items which cater to the ever changing tastes of consumers. McDonalds has been criticized over the years as being a major contributor high obesity rates, in part due to the speedee service concept. These criticism have caused McDonald’s to rethink menu items and helped the company to enact numerous changes to the menu which now offers nutritional guides for each menu item and healthier choices such as salads, fruit, and milk.
McDonald’s has changed the oil used to fry foods to make the fries healthier and includes a choice of meal sizes and most recently started a new line of coffee drinks, which offers the desired Starbucks taste for a fraction of the cost. “The fast food chain currently has 31,000 restaurants worldwide and operates in 119 countries and serves approximately 47 million customers daily. McDonalds is also highly associated with the Ronald McDonald House Charities (RMHC) that has donated money and services to families and communities for over 35 years to approximately 37 million children and families.” (McDonalds, 2009). The McDonald Corporation pays for most of RMHC’s global administration cost so that all donations go directly to the community and families. The charity is in such high demand that RMHC plans to expand their programs by 37% by 2010 to better help those in need.
Burger King started in 1953 first known as Insta Burger King offering hamburgers to consumers that was cooked on a small cooker called an Insta-Broiler oven; the concept proved to be successful. “In 1954 the name changed to Burger King, the broiler oven first used was replaced with the flame broiler and soon became popular for offering their flame broiled hamburgers and what is now known as the Whopper burger.” (Burger King, 2009). The next 60 plus years for Burger King began suffering the same criticisms as McDonalds.
It seemed all fast food chains were being blamed for the increased obesity rate in the U.S. Burger King followed suit and began making changes to their menus adding chicken, salads, fruit, food nutritional guides, smaller sizes, choice of drinks such as tea, milk, and changing the oil used to fry French fries as well as additional changes. Burger King Corporation is associated with a few charity organizations such as “Have It Your Way” which works to alleviate hunger, disease, and promotes community education through scholarship programs; the McLamore Foundation provides scholarships and is associated with several charities for
When Organizations Were Established
Burger King was founded in 1954 in Miami, Florida by James McLamore and David Edgerton. “McLamore and Edgerton, both of whom had extensive experience in the restaurant business before starting their joint venture, believed in the simple concept of providing the customer with reasonably priced quality food, served quickly in attractive, clean surroundings.” (New York Job Source, 2009), thus, the invention of the Whopper which was an instant success. Today Burger is found in all 50 states and 74 countries and territories throughout the world with more than 11,700 restaurants. In 1967 the Pillsbury Company based in Minneapolis, Minnesota purchased the company and its employees and the company went public in May 2006 at $17 a share. Today the company remains majority-owned by an equity group comprised of Texas Pacific Group, Bain Capital Partners and the Goldman Sachs Funds. (New York Job Source, 2009).
McDonald’s was founded by two brothers, Dick and Mac McDonald of San Bernardino, California. Ray Kroc, a milkshake machine distributor happened on the brothers’ restaurant as he was curious to discover why such a small establishment would need 10 milkshake machines. Kroc was impressed by the speed with which these two brothers were able to provide service in their busy hamburger stand and he asked the brothers for a briefing on their “McDonald’s Speedee System” and after the briefing he requested and “secured the rights to duplicate the system throughout the United States. “Ray Kroc opened his first outlet in Chicago in 1955, 50 years later the number of McDonald’s locations had expanded to over 31,500.” (Albrecht, Stice, Stice, & Swain, 2008, pg. 76). Today McDonald’s averages over 100 million dollars a day and is located in 121 countries around the world. Both companies had meager beginnings and have grown into fast food superstars.
Accounting Organizations Providing Audits
Both McDonald’s and Burger King offer burgers, fries, and creamy shakes. However, the differences between McDonald’s and Burger King are far more than golden arches and golden crowns. McDonald’s has both and internal and external audit committees. The internal audit committee is composed of five Directors, each of whom meets the independence and other requirements of the New York Stock Exchange (Santona, 2009). The committee abides by a charter which states all its responsibilities and is reviewed annually. Ernst & Young LLP (Ernst & Young), the Company’s independent auditors, is responsible for performing an audit of the Company’s annual consolidated financial statements in accordance with generally accepted accounting principles (GAAP) and for issuing a report on those statements (Santona, 2009).
The Burger King Corporation also has both internal and external audit committees. The internal committees perform quarterly internal audits that are published for investors, but these audits are indicated as unaudited by an external entity. KPMG LLP is the external organization the Burger King Corporation uses for its external audits.
Financial Statements Used and Terminology
As a publicly traded company within the United States Burger King Corporation (BKC) has taken all the necessary steps required to abide by the regulations set forth the Sarbanes-Oxley Act of 2002. “The annual report for FY2008 includes information such as business information, risk factors, physical assets, legal proceedings, stockholder matters, and finally a comprehensive financial statement.” (Burger King Corp, 2009). This section of the annual report begins with management reports on internal controls which are in place regarding financial reporting which explains in detail the understanding of both the CEO and CFO and their obligation to take full responsibility for the content of the annual report. The report of the independent registered public accounting firm (KPMG) is and additional statement of responsibility from the independent accounting firm which states the firm has reviewed the information. Paged within the reportcontain the balance sheet, statement of income, statement of stockholders equity, and statement of cash flows for FY2008 compared to 2007, 2006, and 2005.
While BKC’s annual report was presented in a standard no-frills format, McDonald’s Corporation’s 2008 annual report included graphics and photos as the driver of the information. Along with the financial statements, “McDonald’s annual report focused on highlights from the menu to the money along with letters of welcome from the Chairman, Andy McKenna and CEO, Jim Skinner.” (McDonalds Corporation, 2009). The financial reporting still included the management’s report on internal controls, the report of independent registered public accounting firm (Ernst & Young, LLP), the balance sheet, statement of income, statement of stockholders equity, and the statement of cash flows. In both instances a dedicated effort was made to satisfy the requirements regulated by the United States Securities and Exchange Commission.
Basic Accounting ConceptsIn 2008, McDonalds’ financial report shows annual total revenue at 23,522.4 million dollars compared to Burger King’s 2,455.0 million dollars; a difference of 21,067.4 million dollars; McDonald’s clearly having earned more revenue (MSN Money, 2009). However, prior to 2003, the difference between McDonald’s profits and Burger King’s were even greater. “From 2001 through 2003 Burger King was losing money, but has made a steady annual gross profit since.” (CNN Money, 2006).
In 2008, Burger Kings’ annual profit was 1,452.0 million dollars and in 2007 the profit was 1,317.0 million dollars, a growth of 135 million dollars. McDonald’s has also encountered gross profit over the past two years, however, at a much greater scale. In 2008 the gross profit recorded was 8,639.2 million dollars and in 2007 a gross profit was recorded of 7,905.2, an increase in profit of 734 million dollars.
Accounts Affected by Transactions
While the two fast food restaurant chains are no where near comparable in revenue, both chains are increasing revenue year after year. Since 2006, when Burger King became a publicly traded company; like McDonald’s, they both worked to maintain a profitable growth for share holders which has increased the amount of profit each year (MSN Money, 2009). Both companies have cash assets as well as land and property, rental fees, food, supplies, salary responsibilities, and advertising. Financial Statements Affected by TransactionsEach of the transactions listed for Burger King and McDonald’s are provided in detail on a number of the financial statements. Specifically, the profit can be followed on the balance sheet, the statement of income, and the statement of cash flows located in each annual report. In addition these figures are compared to the previous years’ numbers on each of these statements.
McDonald’s and Burger King have been in business for decades and each company has established its respective company in the hearts of the American people and consumers across the globe when they expanded into global market. Both companies use reputable accounting firms and the same types of financial statements in order to assess the health of their financial status. This paper has shown how important understanding the concepts, terms, and transactions listed on financial statements are in order to better gauge how a company is faring financially on a year to year basis.
Albrecht, W.S., Stice, E.K., Stice, J.D. & Swain, M.R. (2008). Accounting: Concepts and applications, (10 ed). Cengage Learning Center, Mason, Ohio.
Burger King Corp. (2009). Company Info. Retrieved June 20, 2009 http://www.bk.com/Companyinfo/corporation/fact.aspxCNN Money. (2006). The King Meets his Public. Retrieved June 18, 2009, from http://money.cnn.com/magazines/fortune/fortune_archive/2006/03/06/8370602/index.htmMcDonalds. (2009). Our company. Retrieved June 18, 2009 from http://www.aboutmcdonalds.
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