Table of Contents
Company profile, product and industry position
product and industry position
The Market: Demand, Competition, Rival and Complement products,
and Consumer target segments
Strategies and initiatives for efficiency, profitability, and sustainability
Future outlook and investment recommendation
Table 1.1 McDonald's and Pfizer Year-on-year comparison of Performance Ratios (Macrotrends, n.d.)
Diagram B.1 McDonald's Operational Costs, Revenue and Marketing Costs
Diagram B.2 Pfizer's Operational Costs, Revenue and Marketing Costs
Appendix C Price Elasticity of Demand
Comparison of McDonald's and Pfizer for Investment
Pfizer Inc. (Pfizer) and McDonald's Corporation (McDonald's) are amongst the two most successful industry leaders in their respective market sectors, each earning several billion dollars of revenue per year (Pfizer, 2019a; McDonald's, 2019a). Both firms are backed with sound financial statements that could prove lucrative to investors looking to capitalize on each company's success in their respective industry. The objective of this paper is to provide a comparative analysis of corporate profiles, financial performance, industry competitors, and efficiency strategies for both Pfizer and McDonald's, thus allowing investors to make an informed decision on either company to reach an investment decision. An in-depth examination of key financial figures is presented along with comparative statements to aid prospective investors in understanding the market position of both investment options. Finally, an investment recommendation is presented based on the substantiations provided in this paper to facilitate investors to make an informed decision.
Company profile, product and industry position
Pfizer, one of the world's largest and most financially successful pharmaceutical companies, stands as one of the greatest medication innovators in modern history (Pfizer, 2019a). Operating in over 100 countries with one of the most recognized logos internationally, McDonald's restaurants are a major part of the global fast food industry (McDonald's, 2019a; Schroder & McEachern, 2005). Pfizer operates in an oligopoly and McDonald's operate in a monopolistic competitive market, each sharing their respective target market with numerous global and local competitors, thus adopting regionally and nationally tailored product offerings in an effort to maximize profits and revenues, although some of Pfizer's patented medications offer it a monopoly in highly specialized medications for rare conditions for which no generic exists (Pfizer, 2019a; McDonald's, 2019a; Rugman & Brain, 2004).
Founded in 1849 by Charles Pfizer in New York City, Pfizer has grown to become one of the world's largest pharmaceutical companies (Pfizer, 2019a; Rugman & Brain, 2004). Reporting global revenues in excess of $53.6 billion in 2018, Pfizer is a producer of some of the most important oncological, cardiac, and endocrine-targeted pharmaceuticals in the healthcare sector (Pfizer, 2019a). Rugman and Brain (2004) find that Pfizer targets a large proportion of its sales in its home market, the United States, to create market dominance and brand recognition. The firm has purchased many of its competitors, including Wyeth and Pharmacia, and holds patents to industry-leading medication advances (Pfizer, 2019). Examining the demand elasticity for pharmaceutical medications, Ragan (2020) and the World Health Organization (2012) find essential items and lifesaving medications to have an inelastic demand. Medications are essential for many individuals to sustain life or operate at a level conducive to their activities of daily living, and therefore are paid though publicly-financed health systems or privately by consumers, often regardless of price demanded by the supplier (World Health Organization, 2012). Pfizer maintains patent control of key oncological, rheumatology, and auto-immune medications (Pfizer, 2019a).
McDonald's was founded in 1940 by Dick and Mac McDonald in San Bernardino, California, later being sold to investor Ray Kroc in 1954 (McDonald's, 2019a). The restaurant chain operates in over 100 countries, serving over 68 million customers daily in over 36,000 locations around the world (McDonald's, 2019b; Nandini, 2014). Having become the world's largest restaurant chain by revenue, McDonald's offers customers regionally based and global fast food staples such as hamburgers, fries, speciality beverages, and café items (McDonald's, 2019a). Competing against international restaurant chains such as Burger King, Wendy's, and Subway, McDonald's has retained its place as the leading competitor in a monopolistic competitive market (Muller, 1997).
Pfizer and McDonald's both offer an array of products to cater to broad demographics of consumers, bringing in revenues of $53.6 billion and $21 billion respectively (Pfizer, 2019a, McDonald's, 2019b). Both firms are internationally recognized brands, carrying immeasurable global value through brand recognition. With Pfizer maintaining control of 5.8% of pharmaceutical sales globally and McDonald's representing 19% of all fast-food sales in 2018, both firms are market leaders in their respective industries (Pfizer, 2019a; PR Newswire, 2019).
The pharmaceutical industry continues to grow as the population ages, the trend to unhealthier lifestyle choices, increased income, rise in chronic diseases and an increase in environmental disturbances lead to a growing demand for improved medication and health supplements. (https://marketrealist.com/2020/01) Whereas, the fast food industry's consumption rate hasn't changed in 15 years, a third of children eat fast food daily, are providing healthier food, McDonald's sells 75 hamburgers a second and has more locations than Burger King, Wendy's, Taco Bell, and Arby's combined. (https://pos.toasttab.com/blog/10-fast-food-industry-statistics)
While both corporations are well positioned to compete in their industries, McDonald's has shown that their dominance outperforms in their respective industries.
McDonald's revenues have been declining on a yearly basis which might frighten some investors. However, a closer look displays net income has been increasing since 2014. This signifies that they managed to reduce some of their liabilities and expenses to retain more of their revenue. In 2018 McDonald's had $31,075 million in debt. Conversely, it had $32,811 million in assets. Their financial report states that a share in the company is priced at $177.59. Each share earns a quarterly dividend of $4.19. It is also beneficial to note, the number of franchised locations has been increasing worldwide every year for the past 6 years (US Securities and Exchange Commission, 2018, p. 14).
Pfizer Inc. reported revenues of $53,647 million for the fiscal year ended December 2018 (FY2018), an increase of 2.1% over FY2017. In FY2018, the company's operating margin was 22.8%, compared to an operating margin of 24.7% in FY2017. In FY2018, the company recorded a net margin of 20.8%, compared to a net margin of 40.6% in FY2017" (Pfizer, 2019b).
McDonald's reported revenues of $21,025.2 million for the fiscal year ended December 2018 (FY2018), a decrease of 7.9% over FY2017. In FY2018, the company's operating margin was 42%, compared to an operating margin of 41.9% in FY2017. In FY2018, the company recorded a net margin of 28.2%, compared to a net margin of 22.8% in FY2017" (McDonald's, 2019c).
The higher the current ratio, the lower the risk for a company to repay its debt immediately. Pfizer has a better Current Ratio with 1.5671 compared to Macdonald's with 1.3631. However, McDonald's has a lower Debt-to-Equity Ratio of -4.9654 as compared to Pfizer with 0.6547, which indicates that the company is not heavily reliant on debt, and it is in a better position to repay its long-term debt.
McDonald's shows a lower Return-On-Equity with -94.6616 compared to Pfizer with 17.5384. However, McDonald's Earnings-Per-Share is significantly more at $7.54 as compared to Pfizer at $1.87 (Nasdaq, n.d.).
Overall, although Pfizer has a lower Current Ratio and can repay its debt immediately, McDonald's is not heavily reliant on debt and is in a better position to repay its long-term debt with a lower Debt-to-Equity Ratio. Moreover, McDonald's has a significantly higher Earnings-Per-Share compared to Pfizer. Table A.1 McDonald's and Pfizer Year-on-year comparison of Performance Ratios (Macrotrends, n.d.) summarizes this data, found in Appendix A.
Pfizer had higher operating costs at $33,709 million in 2018. Its operating cost were also 62.8% of its revenue, which is a lot higher than McDonald's. For Pfizer, the marketing costs were $14,455 million which is 26.9% of its revenue (Pfizer Inc. and Subsidiary Companies, 2018). McDonald's had a lower operating cost at $10,239 million in 2018. Its operating cost were only 48.7% of its revenue. It also had a marketing cost of $2,200 million which is 10.5% of its revenue (US Securities and Exchange Commission, 2018). Despite this information, it is good to note that Pfizer made 2.5 times more in revenue than McDonald's. Additionally, the cost of salaries and research and development are included in operational cost, and Pfizer might incur higher costs than McDonald's due to the nature of their respective products. Appendix B. Diagrams B.1 and B.2 display costs and revenues of the firms over 2017 and 2018.
In summary, based on these numbers, it indicates that McDonald's is in a much better position as compared to Pfizer, especially since McDonald's reported a year-over-year net margin increase as compared to Pfizer, which reported a decrease year-over-year.
The Market: Demand, Competition, Rival and
Complement products, and Consumer target segments
McDonald's belongs to a monopolistic competitive industry full of competitors that sell similar menu items essentially, but no company's menu can replace any others completely. The menus in the fast food industry are diverse and each menu is unique to the firm who sells it. This is beneficial for McDonald's because, consumers will return for specific menu items. Pfizer is an oligopoly. They have different size firms in the industry that compete and cooperate which influence the market.
Both markets have substitute and complimentary products, generics for Pfizer and a variety of fast foods in McDonald's, but Pfizer holds many patents on current drugs and awaiting approval on several others and McDonald's has their brand dominance.
Since the price elasticity of demand is inelastic for both, see Appendix C for calculations, the price changed significantly when there was a change in quantity demanded. In other words, when the quantity of the producer of the unpatented drug increased the revenue decreased considerably. Additionally, when the quantity of the franchises increased, the revenue earned decreased. McDonald's lower price elasticity of demand requires them to keep price in line with competitors, whereas, Pfizer has inelastic demand of many of their products and can increase prices if substitutes have not gone online. Pfizer's competitors continue to challenge their patents and produce generics as patents expire, McDonald's competitors continue to attempt to expand their market share. With McDonald's brand recognition, they have a stronger opportunity to outperform their competitors.
McDonald's Corporation is a successful company within the fast-food industry that actively competes with the following major competitors: Burger King Worldwide Inc., Chipotle Mexican Grill Inc., Doctor's Associates Inc., Domino's Pizza Inc., Jack in the Box Inc. (MarketLine, 2019a). Pfizer Inc. is also a successful company within the pharmaceutical industry and actively competes with the following major competitors: AbbVie Inc, Amgen, Inc., AstraZeneca PLC, Bristol-Myers Squibb Co, Eli Lilly and Company, (MarketLine, 2019b).
The pharmaceutical industry is a promising industry for investors. Pfizer, specifically, is seeing a growing demand for their products such as Prevnar 13 and Lipitor. Despite strong competition, their revenue is increasing (Mikulic, 2019). The demand for McDonald's is growing as the number of locations are expanding. However, their revenue is steadily decreasing over time. Which might signal that their attractive to investors hoping to franchise, but the franchised locations are managed inefficiently, or the quantity demanded is decreasing (Lock, 2019). While Pfizer continue their strong competitive position, McDonald's market dominance and recognition, puts them in a better position.
Strategies and initiatives for efficiency, profitability, and sustainability
Looking forward, both corporations have sound strategies and initiatives to continue to keep and expand their market shares. McDonald's vision is compiled and consolidated in their "Velocity Growth Plan" (McDonald's Corporation, 2018 Annual Report, page16) and Pfizer's' vision is based on a variety of situations that the company must deal with. As for efficiency, McDonald's are looking at automating services and improving their delivery methods while retaining, regaining and converting new consumers with proven, new and innovative products. Whereas, Pfizer are making improvements after reorganizing into three main businesses, science-based Innovative Medicines business, developing the off-patent division and cooperatively developing their Consumer Healthcare business. (Proxy Statement for 2019 Annual Meeting of Shareholders 2018 Financial Report). Other strategies they are employing include, partnerships and mergers, technology-based strategies, operational marketing and sales and new market access. (https://work.chron.com/strategies-business-development-pharmaceutical-industry-21114.html)
Both companies have several pending lawsuits in various jurisdiction's, with a wide variety of allegations spanning the entire organization. They do not believe that any will have an adverse effect, although, unfavorable rulings could cause an impact to net income for a period and into the future.
In comparison, Pfizer revenues have increased significantly from 2018 to 2017. For 2018, net income was $11,153 million which is drastically lower than 2017. However, in 2017 they saw a sudden increase in net income (Pfizer Inc. and Subsidiary Companies, 2018, p. 20). In 2018, Pfizer had $21,600 in assets and $20,140 in total liabilities (Pfizer Inc. and Subsidiary Companies, 2018, p. 55). Their basic EPS is $1.90, and they have an extensive list of products that are being approved by the FDA to put into the market (Pfizer Inc. and Subsidiary Companies, 2018, p. 70). In conclusion, both companies are expanding. McDonald's is constantly increasing the number of franchises globally which, in theory, should increase the potential for future revenue. In the same way, Pfizer has a long list of products to be approved for sale. Once approved, they also have the potential to increase future revenue.
Future outlook and investment recommendation
Based on an in-depth financial analysis, examination of each company's respective history, market performance, and competitors, our recommendations find that investing in McDonald's corporation can serve to maximize investor returns. Having locational diversity, fewer barriers to market entry than Pfizer, and far less regulatory oversight pose a lower risk of litigation and share price volatility than investing in a pharmaceutical firm.
One further advantage that investors can derive from investing in McDonald's is the lower debt to equity ratio over Pfizer, thus lowering the risk potential of investing. With the price elasticity of demand, of fast food being inelastic, a steady flow of business in the future is projected.
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McDonald's and Pfizer Year-on-year comparison of Performance Ratios (Macrotrends, n.d.)
As of December 2018.
Pre-Tax Profit Margin
Net Profit Margin
Inventory Turnover Ratio
Days Sales in Receivables
ROE - Return on Equity
Return on Tangible Equity
ROA - Return on Assets
ROI - Return on Investment
Book Value Per Share
Operating Cash Flow Per Share
Free Cash Flow Per Share
Diagram B. 1 McDonald's Operational Costs, Revenue and Marketing Costs
(US Securities and Exchange Commission, 2018)
Diagram B. 2 Pfizer's Operational Costs, Revenue and Marketing Costs
(Pfizer Inc. and Subsidiary Comapanies, 2018)
Price Elasticity of Demand
To determine the price elasticity of demand for Pfizer, a product will be used as an example. This product had a patent for various years. In 2006, Pfizer was earning revenues of $12.9 billion from this protected product. When the patent expired in 2011, many companies began making generic version of the product and consequently revenues from the product fell to $2 billion. The price elasticity of demand for the previously patented product computed as follows: Change in quantity (number of sellers)/change in price =10/10.9b = .91743 < 1.
Therefore, the price elasticity of demand is inelastic. (Mikulic, 2019)
As for McDonald's, the price elasticity of demand was calculated based on franchises in operation and sales revenue. The number of franchises in operation steadily rose each year. However, sales revenue is steadily falling. In 2017, McDonald's had 37,241 franchises open globally. All of which brought in a combined revenue of $22,820 million for the year. In 2018, they had 37,855 international franchises, but their revenue was only $21,025 million. The price elasticity of demand for McDonald's in 2017 and 2018 is computed as follows: Change in quantity/change in price = 614/ 1795 = .34206 <1. Therefore, the price elasticity of demand is inelastic. (US Securities and Exchange Commission, 2018, p. 14
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