The comparative regional segment revenues for McDonald’s Corporation are as follows:

The comparative regional segment revenues for McDonald’s Corporation are as follows:


Year 2
(in millions)
Year 1
(in millions)
United States $ 8,112 $ 7,944
Europe 9,569 9,274
APMEA* 5,065 4,337
Other Countries & Corporate 1,328 1,190
Total revenues $24,074 $22,745
*APMEA = Asia/Pacific, Middle East, Africa



a. Provide a horizontal analysis of the regional segment revenues using Year 1 as the base year. Round whole percents to one digit.

b. Provide a vertical analysis of the regional segment revenues for both years. Round whole percents to one digit.

c. What conclusions can be drawn from your analyses?


Answer:

a. Horizontal analysis:
Year 2
(in millions)
Year 1
(in millions)
Increase/(Decrease)
Amount Percent
United States $ 8,112 $ 7,944 $ 168 2.1%
Europe 9,569 9,274 295 3.2%
APMEA 5,065 4,337 728 16.8%
Other Countries & Corporate 1,328 1,190 138 11.6%
Total revenues $24,074 $22,745 $1,329 5.8%
b. Vertical analysis:
Year 2 Year 1
Amount
(in millions) Percent
Amount
(in millions) Percent
United States $ 8,112 33.7% $ 7,944 34.9%
Europe 9,569 39.8% 9,274 40.8%
APMEA 5,065 21.0% 4,337 19.1%
Other Countries & Corporate 1,328 5.5% 1,190 5.2%
Total revenues $24,074 100.0% $22,745 100.0%


c. The United States (U.S.) segment revenues increased 2.1% from Year 1 to Year 2, while Europe, APMEA, and Other Countries & Corporate increased 3.2%, 16.8%, and 11.6%, respectively. The higher growth rate in the smaller regions is the result of growing from a smaller base of revenue. The vertical analysis indicates that the U.S. and Europe declined from 34.9% to 33.7% of total revenues, and 40.8% to 39.8% of total revenues, respectively, while APMEA increased from 19.1% to 21.0% of total revenues. The vertical analysis is consistent with the horizontal analysis, showing modest revenue increases in the U.S. and Europe and stronger increases in APMEA. The growth in APMEA is likely due to restaurant unit growth in this part of the world.