McDonald’s: Franchise Accounting and the $5 Meal Deal

Name: McDonald’s: Franchise Accounting and the $5 Meal Deal (English version)
SKU: W39454

Sa-Pyung Sean Shin, Seil Kim

Product #:W39454

Supplier:Ivey/NUS

Discipline:Accounting, Finance

Setting:2024

Details:Case (PDF) • 16 pages • 2025-04-29

Subjects:

Inflation Franchises Equity financing Finance and investing Accounting

Industries:

Food and beverage sector

Your Price:

$9.71

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In July 2024, McDonald’s Corporation (McDonald’s) faced a strategic dilemma amid rising inflation and interest rates. The introduction of a $5 Meal Deal, designed to attract cost-sensitive customers, sparked concerns among franchisees about shrinking profit margins in the context of McDonald’s franchise-heavy model, which relied on revenue from rent and royalties. McDonald’s had also made substantial real estate investment a core part of its business strategy; this provided stable income but also brought significant liabilities. The company’s chief executive officer needed to consider how the $5 Meal Deal would affect McDonald’s financial resilience and margins in a high-inflation and high-interest-rate environment. What would its impact be on both franchised and company-operated restaurants?

Learning Objectives

This case covers financial accounting concepts such as revenue recognition, historical cost versus fair value accounting, and accounting for dividends and share repurchases and can thus be useful as a capstone case for reviewing concepts at the end of a course. It is appropriate for intermediate financial accounting and financial statement analysis courses at the undergraduate and graduate levels. The case explores McDonald’s dual business model and applies revenue recognition related to the franchise business model. It also explores how a promotion of low-margin menu items affects McDonald’s franchised restaurants and company-operated restaurants; examines McDonald’s accounting practices concerning property assets, long-term debt, and negative equity; investigates why profitable companies might still report negative equity; and explores the reasons debt-holders might be willing to extend credit to companies with liabilities exceeding their assets. After working through the case and assignment questions, students will be able to do the following:

Explain different revenue recognition methods based on a company’s business model.
Review basic accounting concepts such as accounting for property, long-term debt, dividends, and share repurchases.
Consider the impact of high inflation and high interest rates on financial statements.