Calculate ROI for geographic segments; analyze results—McDonald’s Corp McDonald’s conducts operations worldwide and is managed in three primary geographic segments: America, Europe, and Asia/Pacific, Middle East and Africa (APMEA). A hybrid geographic/corporate segment (“Other Countries and Corporate”) reports on the results of Canada and Latin America as well as any unallocated amounts. McDonald’s allocates resources to and evaluates the performance of its segments based on operating income. The asset totals disclosed by geography are directly managed by those regions and include accounts receivable, inventory, certain fixed assets, and certain other assets. Corporate assets primarily include cash and cash equivalents, investments, deferred tax assets, and other assets. Refer to the following geographic segment data (in millions) from the 2008 annual report of McDonald’s Corp.:
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| U.S. | Europe | APMEA | Other Countries&Corporate | Total Company |
Net revenues | 2008 | $ | 8,078 | $ 9,923 | $ 4,231 | $ 1,290 | $ 23,522 |
| 2007 |
| 7,906 | 8,926 | 3,599 | 2,356 | 22,787 |
| 2006 |
| 7,464 | 7,638 | 3,053 | 2,740 | 20,895 |
Segment operating income | 2008 | $ | 3,060 | $ 2,608 | $ 818 | $ (43) | $ 6,443 |
| 2007 |
| 2,842 | 2,125 | 616 | (1,704) | 3,879 |
| 2006 |
| 2,657 | 1,610 | 364 | (198) | 4,433 |
Depreciation and amortization expense | 2008 | $ | 401 | $ 506 | $ 193 | $ 107 | $ 1,207 |
| 2007 |
| 403 | 473 | 178 | 113 | 1,214* |
| 2006 |
| 391 | 436 | 172 | 110 | 1,250* |
Assets | 2008 | $ | 10,357 | $ 10,533 | $ 4,075 | $ 3,497 | $ 28,462 |
| 2007 |
| 10,032 | 11,380 | 4,145 | 3,834 | 29,391 |
| 2006 |
| 9,477 | 10,414 | 3,728 | 3,529 | 28,974** |
*Depreciation and amortization expenses associated with “Businesses held for sale” and “Discontinued operations” were not allocated to the business segments in 2007 and 2006; these amounts, which totaled $47 million in 2007 and $141 million in 2006, are included in the “Total Company” column only.
**Assets associated with “Businesses held for sale” and “Discontinued operations” were not allocated to the business segments in 2006; this amount, which totaled $1,826, is included in the “Total Company” column only.
Required:
a. Based on a cursory review of the data, can you identify any significant trends in the consolidated totals? Are there any notable trends in the data for specific business segments?
b. Using the DuPont model to show margin and turnover, calculate ROI for each of the three primary geographic segments for 2008. Round your percentage answers to one decimal place.
c. Looking only at the data presented here, which business segment appears to offer McDonald’s Corp. the greatest potential for high returns in the future?
d. Comment about the difficulties you may encounter when attempting to interpret the “Other Countries&Corporate” segment results.
e. Can you think of any ways in which McDonald’s could improve upon their classification of geographic segment data?
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