Business Case Studies

Strategic role of financial management

McDonald’s expands globally through franchising and invests in technology such as self-service kiosks, mobile ordering and delivery partnerships.

Profitability

Profitability: McDonald’s earns consistent profits through franchising, where franchisees pay royalties and rent.

Growth

Growth: Apple expands into new markets through products like Vision Pro, Apple Watch, etc.

Efficiency

Efficiency: McDonald’s self-serve kiosks reduce labour costs

Liquidity

Liquidity: McDonald’s stable franchise income provides consistent cash flow to pay off short-term debts

Solvency

Solvency: McDonald’s uses long-term debt to finance growth while maintaining strong earnings

Short term financial management

Short term: Apple’s inventory, cash management, and supplier payments

Long term financial management

Long term: Apple’s new product development, AI development and global expansion

Interdependence

Operations: Finance funds Apple’s advanced manufacturing and automation

Marketing: Finance funds McDonald’s promotions such as Monopoly and MyMacca’s Rewards

HR: Finance budgets for McDonald’s staff training, wages and recruitment

Internal sources of finance

Qantas retained a significant portion of its $2.5 billion earnings to fund fleet renewal and future growth rather than relying solely on borrowing

External sources of finance

Debt: Due to COVID, McDonald’s overdrew US$1Billion to meet cash flow needs, which was repaid in March 2021

Equity: Issued 1660 million shares, with 745 million shares currently in the market, in December 2020

Financial institutions

Financial institutions such as investment banks and the ASX enable Qantas to raise capital and access long-term finance

Influence of government

As an ASX-listed company, Qantas must comply with ASIC regulations such as releasing accurate financial reports to investors. Company tax also affects Qantas’ net profits and retained earnings

Economic outlook

Covid caused a collapse in global travel demand, resulting in significant financial losses for Qantas.

Availability of funds

During covid, lenders became more cautious, making external finance more difficult and expensive

Interest rates

Rising interest rates increase the cost of servicing loans and financing new aircrafts.

Financial needs

Qantas identified the financial needs to fund fleet renewal and long-term expansion after covid which maintaining sufficient working capital

Budgets

Qantas uses annual operating budgets for labour, fuel, maintenance and marketing, budgets allow management to forecast revenue and control costs

Financial risks

Qantas’ financial risks are fuel price volatility, cybersecurity risks, and declines in travel demand, which it manages through fuel hedging, insurance and diversified revenue streams

Financial controls

Qantas has internal and external audits, board oversight, and risk management committees

Debt financing

Qantas borrowed billions during covid and leases aircraft

Equity financing

Qantas raised $1.26 billion through a share issue during covid

Matching finance to business purpose

Qantas matches long-term finance with long-term assets such as aircraft, while using short-term finance for working capital needs

Cash flow statement (M&C)

monitors whether sufficient cash is available for wages, suppliers and debt repayments

Income statements

Used to evaluate profitability after covid

Balance sheet

Used to assess liquidity, gearing and solvency

Normalised earnings

covid losses distorted profitability, so investors examines underlying earnings rather than statutory profit

Capitalising expenses

Aircraft purchases are capitalised as assets

Valuing assets

2020 report showed McDonald’s land was listed at $3.6 billion; however, McDonald’s property could actually be worth more then $42 billion at market prices

Timing issues

Aircraft may be purchased in one year while generating revenue over many years

Debt repayments

Financial statements may not clearly show the future burden of long-term aircraft debt.

Notes to financial statements

Investors read notes for details about leases, debt maturity dates, risks and contingent liabilities.

Ethical issues related to financial reports

Ethical financial reporting helps maintain investor confidence by ensuring Qantas provides accurate, transparent and timely financial information.

Cash flow statements

Apple’s cash flow statements allow management and investors to assess cash generated from operations, investing and financing activities.

Distribution of payments

Qantas receives most payments before the service is provided, creating a strong cash inflow that assists Qantas meet short-term expenses such as fuel, wages and suppliers.

Discounts for early payment

McDonald's receives payment immediately when customers purchase, meaning it does not need to offer discounts for early payment to customers.

Factoring

McDonalds’ customers pay immediately so it does not have large amounts of outstanding customer debt meaning it had no need for factoring

Control of current assets - cash

Apple maintains substantial cash, providing liquidity, used to meet short-term obligations and fund investments such as R&D and acquisitions.

Control of current assets - receivables

Qantas receives most passenger payments before travel, reducing the amount of money tied up in accounts receivable.

Control of current assets - Inventories

McDonald's must carefully manage inventories of food and packaging because many food products are perishable.

Control of current liabilities - payables

McDonald’s accounts payables increased by 23% in 2015-2017 due to their sourcing of debt equity

Control of current liabilities - loans

Qantas manages loans and repayments to balance debt obligations with operating cash and reduce financial risk

Control of current liabilities - overdrafts

Short term borrowing can cover temporary cash shortages for Qantas

Leasing

Qantas leases aircraft rather then buying all outright, which reduces upfront capital costs and preserves working capital

Sale and lease back

Qantas sells aircrafts to receive an immediate cash injection then leases it back to continue using it

Fixed costs

McDonald’s controls fixed costs such as rent and salaries

Variable costs

McDonald’s controls food, packaging and labour costs

Expense minimisation

Qantas’ transformation program reduced operating costs by cutting expenses

Marketing objectives

MyMaccas rewards encourages repeat purchases and increases revenue and profitability

Exchange rates

Qantas is exposed to AUD and USD fluctuations