Intro
This post is based on the company’s official 10-K filing and investor relations (IR) materials. It summarizes only objective facts and the logical implications that directly follow from them. Personal opinions and forecasts have been minimized. The goal is to help readers understand and interpret the materials more easily.
Table of Contents
👉 1. Business Overview
👉 2. Financial Highlights
👉 3. Valuation
👉 4. Risk
👉 5. MD&A (Management’s Discussion and Analysis)
👉 6. Summary
1. Business Overview 🌐
🍔 What Does McDonald’s Do?
McDonald’s Corporation (NYSE: MCD) is one of the largest quick-service restaurant (QSR) companies in the world. A quick-service restaurant means fast food designed for speed, convenience, and affordability.
The company operates and franchises restaurants under the McDonald’s brand, serving burgers, chicken, fries, breakfast items, beverages, and desserts in more than 100 countries.
Most locations are franchised, meaning independent operators run the restaurants while paying McDonald’s fees and rent. This model allows the company to generate stable revenue with lower direct operating costs.
- Global Brand Recognition – One of the most recognized brands worldwide.
- Franchise-Based Model – Over 90% of restaurants are operated by franchisees.
- Real Estate Ownership – McDonald’s often owns the land and buildings, generating rental income.
- Digital & Delivery Expansion – Growth through mobile apps, kiosks, and third-party delivery partnerships.
🌎 Business Structure & Segments
McDonald’s reports results through geographic segments. These typically include:
- U.S. – The company’s largest and most profitable market.
- International Operated Markets – Countries where McDonald’s operates directly.
- International Developmental Licensed Markets – Regions operated by strategic partners under licensing agreements.
Franchising means McDonald’s earns revenue from franchise fees and rent, rather than directly selling food in many locations. This creates a more predictable cash flow model compared to fully company-operated chains.
📈 Competitive Position
McDonald’s competes with global and regional fast-food brands such as Burger King, Wendy’s, Yum! Brands (KFC, Taco Bell), and local quick-service chains.
The company’s competitive advantages include:
- Scale – Massive purchasing power lowers ingredient costs.
- Operational Efficiency – Standardized systems improve speed and margins.
- Menu Innovation – Regular product launches drive repeat visits.
- Technology Integration – Digital ordering, loyalty programs, and data analytics enhance customer engagement.
Economies of scale (cost advantages gained from operating at large size) allow McDonald’s to maintain strong profit margins compared to smaller competitors.
💡 Revenue Model Explained
McDonald’s generates revenue through two main sources:
- Franchise Revenue – Royalties and rental income from franchisees.
- Company-Operated Restaurant Sales – Direct sales from restaurants the company owns and operates.
Because franchised restaurants typically have higher margins than company-operated stores, the franchise-heavy structure supports consistent profitability and cash generation.
🌱 ESG & Sustainability Focus
McDonald’s emphasizes environmental and social initiatives, including:
- Reducing greenhouse gas emissions
- Responsible sourcing of ingredients
- Waste reduction and packaging improvements
- Community engagement programs
ESG stands for Environmental, Social, and Governance, which refers to how a company manages sustainability and ethical business practices.
🧾 Plain English Summary
McDonald’s is not just a burger chain — it is a global franchise and real estate business with strong brand power and predictable cash flow. Most restaurants are run by franchisees, which reduces risk and stabilizes profits. Its large scale, digital investments, and global footprint help maintain its leadership position in the fast-food industry.
2. Financial Highlights 📊
Income Statement Summary 💵
Unit: $m (millions), EPS in $
| FY 2023 | FY 2024 | FY 2025 | |
|---|---|---|---|
| Revenue | 25,494 | 25,920 | 26,885 |
| Cost of Goods Sold | 11,030 | 11,349 | 11,452 |
| Gross Profit | 14,464 | 14,571 | 15,433 |
| SG&A | 2,817 | 2,859 | 3,040 |
| Operating Income | 11,647 | 11,712 | 12,393 |
| Non-Operating Income/Expense | 236 | 139 | 87 |
| Interest Income/Expense | (1,361) | (1,506) | (1,582) |
| Income Before Tax | 10,522 | 10,345 | 10,897 |
| Income Tax | (2,053) | (2,121) | (2,334) |
| Net Income | 8,469 | 8,223 | 8,563 |
| EPS | 11.6 | 11.4 | 12.0 |
Plain English: McDonald’s grew total revenue from FY2024 to FY2025, and operating income rose as well. The business generates very large operating profit relative to revenue, but interest expense is still a meaningful ongoing cost. EPS improved in FY2025, reflecting higher profits and a share count that continues to trend down over time due to buybacks.
Key Financial Ratios 📌
Unit: % (percent), except ratios marked (x)
| Ratio | FY 2023 | FY 2024 | FY 2025 |
|---|---|---|---|
| ROE (%) | (158.2) | (193.4) | (306.6) |
| ROA (%) | 16.8 | 14.8 | 14.9 |
| ROTC (%) | 33.6 | 33.8 | 32.5 |
| ROIC (%) | 31.2 | 27.8 | 26.1 |
| Gross Margin (%) | 56.7 | 56.2 | 57.4 |
| Operating Margin (%) | 45.7 | 45.2 | 46.1 |
| Pretax Margin (%) | 41.3 | 39.9 | 40.5 |
| Net Margin (%) | 33.2 | 31.7 | 31.8 |
| Debt-to-Equity Ratio (D/E) (%) | (835.9) | (1,011.8) | (2,231.5) |
| Net Debt / EBITDA (x) | 2.6 | 2.7 | 2.7 |
| Interest Coverage Ratio (x) | 8.6 | 7.8 | 7.8 |
| Current Ratio (%) | 116.5 | 119.1 | 95.5 |
| Quick Ratio (%) | 103.0 | 89.8 | 74.3 |
| Fixed Asset to Long-term Capital Ratio (%) | 76.8 | 73.1 | 74.0 |
Plain English: McDonald’s profitability remains strong: operating margin stayed in the mid-40% range, and ROIC remained high (mid-to-high 20s). Net leverage (Net Debt / EBITDA) stayed around 2.6–2.7x, which is moderate for a mature, cash-generative business. The unusual-looking ROE and D/E are driven by negative common equity (a shareholders’ deficit), which often happens when a company returns large amounts of cash via buybacks over many years—so those two metrics become less intuitive and should be interpreted carefully.
Balance Sheet Summary Template 🧾
Unit: $m (millions)
| FY 2023 | FY 2024 | FY 2025 | |
|---|---|---|---|
| Assets | |||
| Cash & Equivalents | 4,579 | 1,085 | 774 |
| Accounts Receivable | 2,488 | 2,383 | 2,466 |
| Inventory | 53 | 56 | 61 |
| Current Assets | 7,986 | 4,599 | 4,163 |
| Property, Plant & Equipment | 24,908 | 25,295 | 28,241 |
| Intangible Assets | 3,040 | 3,145 | 3,354 |
| Non-current Assets | 48,160 | 50,583 | 55,352 |
| Total Assets | 56,147 | 55,182 | 59,515 |
| Liabilities | |||
| Short-term Debt | 2,192 | 0 | 0 |
| Accounts Payable | 1,103 | 1,029 | 1,149 |
| Current Liabilities | 6,859 | 3,861 | 4,361 |
| Long-term Debt | 37,153 | 38,424 | 39,973 |
| Non-current Liabilities | 53,995 | 55,118 | 56,945 |
| Total Liabilities | 60,854 | 58,979 | 61,306 |
| Equity | |||
| Common Equity | (4,707) | (3,797) | (1,791) |
| Total Liabilities + Equity | 56,147 | 55,182 | 59,515 |
Plain English: McDonald’s has a large asset base driven by long-lived property and leased assets, while cash decreased in FY2025. The balance sheet shows negative common equity, which is not the same as “the company is failing”—it is often a result of long-term capital return (dividends and buybacks) exceeding accounting equity over time. Debt remains substantial and increased in FY2025, but the company also produces strong operating cash flow to service that debt.
Cash Flow Statement Summary Template 💧
Unit: $m (millions)
| FY 2023 | FY 2024 | FY 2025 | |
|---|---|---|---|
| Cash Flow from Operating Activities | 9,612 | 9,447 | 10,551 |
| Cash Flow from Investing Activities | (3,185) | (5,346) | (3,822) |
| Cash Flow from Financing Activities | (4,374) | (7,495) | (7,125) |
| Net Change in Cash | 1,996 | (3,494) | (311) |
| Beginning Cash Balance | 2,584 | 4,579 | 1,085 |
| Ending Cash Balance | 4,579 | 1,085 | 774 |
Plain English: The core story is simple: operations generate a lot of cash, while investing and financing decisions determine where that cash goes. In FY2025, operating cash flow increased, but cash still declined because the company continued to spend heavily on capital investment and returned significant cash to shareholders (dividends and buybacks), alongside net debt activity.
Beginner Takeaways ✅
- High profitability is the core strength. McDonald’s keeps operating margins around the mid-40% range, which is unusually strong for consumer-facing businesses.
- ROIC stays high. Using the required definition (after-tax operating profit relative to invested capital excluding cash), ROIC remained in the mid-to-high 20% range—suggesting efficient profit generation from capital.
- Debt is meaningful, but coverage is solid. Net Debt / EBITDA stayed around 2.6–2.7x and interest coverage remained near ~8x, which indicates the company can generally service interest costs from operating profit.
- Negative equity changes how you read ROE and D/E. When common equity is negative, ROE and debt-to-equity can look “weird” or extreme. This often reflects long-term buybacks and dividends rather than a sudden business breakdown.
- Cash flow shows the business engine. Operating cash flow is consistently strong, and management uses it for capital spending plus shareholder returns—so cash balances can fall even when profits rise.
3. Valuation 🧮
Here are the valuation ratios. These numbers don’t tell you by themselves if the stock is cheap or expensive. Investors typically compare them with peers, the broader market, or with their own view of intrinsic value (DCF). It’s up to each investor to judge whether these multiples signal undervaluation or overvaluation.
Price = $333.05, Market Cap = $214.00B
| Metric | Company |
|---|---|
| P/E | 27.9x |
| Forward P/E | 22.6x |
| P/B | (119.5)x |
| EV/EBITDA | 17.4x |
| P/S | 8.0x |
| Dividend Yield (%) | 2.2% |
| Free Cash Flow Yield (%) | 3.4% |
💡 Plain English Recap
- P/E (27.9x) means investors are paying $27.9 for every $1 of the last year’s earnings per share. For a mature, global consumer brand, this multiple is often judged versus other large “defensive” consumer companies, not high-growth tech.
- Forward P/E (22.6x) uses expected future earnings. If profits rise as analysts expect, the “effective” earnings multiple can look lower even if the stock price stays the same.
- P/B (- 119.5x) is not very intuitive here because McDonald’s reports negative total shareholders’ equity (an accounting deficit driven largely by long-term capital returns like buybacks and dividends). When equity is negative, P/B can turn negative and becomes less useful for valuation.
- EV/EBITDA (17.4x) looks at the whole enterprise value (equity plus net debt) relative to operating cash earnings (EBITDA). This metric is commonly used for mature, cash-generative companies because it adjusts for capital structure (how much debt the company uses).
- P/S (8.0x) shows how the market values each $1 of revenue. For high-margin business models, investors may accept higher P/S because more of each sales dollar can turn into profit.
- Dividend Yield (2.2%) reflects cash dividends relative to the stock price. This can matter for long-term investors who prioritize steady shareholder returns.
- Free Cash Flow Yield (3.4%) approximates how much “cash left after reinvestment” the business generates versus the market cap. Higher FCF yield can be attractive, but it should be assessed alongside growth needs, reinvestment, and debt service.
Forward P/E is shown as a consensus estimate (average from major financial data providers) for reference.
2026-02-24
4. Risk ⚠️
Editorial Note:
In order to enhance readability, we have omitted broad, market-wide risks that generally affect all companies. The following discussion is focused solely on the risks that are specific to McDonald’s and the restaurant industry in which it operates.
🍔 Franchise Model & Franchisee Health
- Dependence on franchisees: A significant portion of revenue comes from franchised restaurants. If franchisees experience financial stress, operational issues, or disputes with the company, it may affect systemwide sales and brand performance.
- Franchisee profitability: Rising food, labor, rent, or financing costs at the franchisee level can reduce store-level margins, potentially limiting reinvestment, remodeling, or expansion.
- Contractual and legal disputes: Disagreements over royalties, pricing policies, or operational requirements could result in litigation or reputational harm.
🌍 Global Operations & Currency Exposure
- Foreign currency risk: Because McDonald’s operates in many countries, revenue and profits are exposed to exchange rate fluctuations. A strong U.S. dollar can reduce reported international earnings when converted back to dollars.
- Geopolitical and regulatory risk: Political instability, trade restrictions, sanctions, or changes in local regulations can disrupt operations or increase compliance costs in certain markets.
🍟 Food Safety & Supply Chain Dependence
- Food safety incidents: Any real or perceived food contamination event can damage consumer trust and significantly impact traffic and sales.
- Supplier concentration: The company relies on third-party suppliers for ingredients and packaging. Disruptions, shortages, or price volatility in commodities such as beef, chicken, potatoes, and cooking oil may pressure margins.
- Logistics disruption: Transportation delays, labor shortages, or infrastructure disruptions may affect restaurant operations and inventory levels.
👥 Labor & Employment Costs
- Wage inflation: Increases in minimum wage laws or competitive labor markets can raise payroll expenses, particularly for company-operated restaurants.
- Labor availability: Difficulty hiring and retaining employees may impact service quality, operating hours, and customer satisfaction.
- Employment regulation: Changes in labor classification rules, benefits requirements, or union activity could increase compliance and operating costs.
🏢 Real Estate & Lease Obligations
- Long-term lease commitments: McDonald’s often owns land but leases restaurant sites. Long-term lease obligations create fixed costs that must be paid regardless of short-term sales performance.
- Real estate valuation risk: Changes in property values or impairment of restaurant locations could lead to asset write-downs (reductions in recorded asset values).
📱 Digital, Technology & Cybersecurity
- Technology system reliability: The company increasingly relies on mobile ordering, delivery platforms, digital kiosks, and loyalty programs. System outages or failures could disrupt operations.
- Cybersecurity risk: A data breach involving customer or employee information could result in legal liability, regulatory penalties, and reputational damage.
🏷️ Brand Reputation & Consumer Preferences
- Brand perception: McDonald’s success depends heavily on brand trust and global recognition. Negative publicity related to food quality, health concerns, sustainability, or social issues could impact customer traffic.
- Changing consumer trends: Shifts toward healthier eating, alternative proteins, or local dining experiences may reduce demand for traditional quick-service menu items.
⚖️ Legal & Regulatory Exposure
- Litigation risk: The company faces ongoing legal proceedings related to employment practices, franchise relationships, intellectual property, and other operational matters.
- Tax and regulatory changes: Changes in corporate tax laws, food labeling requirements, environmental regulations, or advertising restrictions may affect profitability.
💡 Plain English Summary
Most of McDonald’s company-specific risks stem from its global franchise model, its reliance on brand reputation, and the operational realities of running thousands of restaurants worldwide. Rising labor and food costs, franchisee financial health, technology reliability, and currency movements can all affect profits. Because the company operates at a massive global scale, even small operational disruptions can have noticeable financial impact.
5. MD&A (Management’s Discussion and Analysis) 📊
🍔 Revenue Performance & Systemwide Sales
Management highlighted continued growth in total revenues, driven primarily by increases in revenues from franchised restaurants. Franchised revenue typically includes royalties (a percentage of sales paid by franchisees) and rent payments.
- Franchised revenues increased, reflecting higher systemwide sales and ongoing franchise-led expansion.
- Company-operated sales were relatively stable, with performance influenced by menu pricing, customer traffic, and operating costs.
- Systemwide sales growth (total sales across both franchised and company-operated restaurants) was supported by comparable sales growth and new unit openings.
Management emphasized that comparable sales (sales growth from restaurants open at least 13 months) remained an important performance indicator.
💰 Operating Income & Margin Expansion
Operating income increased year-over-year, reflecting revenue growth and disciplined cost management.
- Operating margin improvement was supported by the high-margin franchise model, where royalties and rent carry lower direct operating costs compared to company-operated restaurants.
- Higher franchise mix contributed positively to overall profitability.
- Cost pressures included food and paper costs, payroll and employee benefits, and occupancy expenses.
Operating margin refers to operating income divided by total revenue. It measures how much profit the company generates from core operations before interest and taxes.
🌍 International Markets & Currency Impact
Management discussed performance across international segments, noting that foreign currency fluctuations affected reported results.
- A stronger U.S. dollar reduced reported international revenue and operating income when foreign earnings were translated into U.S. dollars.
- Local market performance varied across geographic segments.
Currency translation does not change local profitability, but it can affect reported consolidated financial results.
🏗️ Capital Allocation & Shareholder Returns
Management reiterated its commitment to disciplined capital allocation.
- Capital expenditures were directed toward restaurant development, remodels, and digital investments.
- The company continued returning capital through dividends and share repurchases (buying back its own stock).
- Long-term debt levels remained significant, reflecting a capital structure that includes leverage (use of borrowed funds).
Share repurchases reduce shares outstanding, which can increase earnings per share (EPS) even if total net income grows more modestly.
💵 Cash Flow & Liquidity
Management emphasized strong cash generation from operations.
- Cash provided by operations increased year-over-year, supported by net income and non-cash adjustments such as depreciation and amortization.
- Free cash flow (cash remaining after capital expenditures) supported dividend payments and share repurchases.
- Cash balances declined compared to prior periods due to capital returns and debt activity.
Liquidity refers to the company’s ability to meet short-term obligations using cash, cash equivalents, and access to credit markets.
📱 Digital & Strategic Initiatives
Management continued to emphasize digital engagement, delivery, and loyalty programs as key growth drivers.
- Growth in digital ordering and loyalty membership supported customer frequency and average check.
- Technology investments aimed to enhance operational efficiency and improve the customer experience.
💡 Plain English Summary
Management’s discussion focused on three core themes: franchise-driven profitability, strong operating cash flow, and disciplined capital returns. Revenue growth was supported by comparable sales and franchise expansion. Margins benefited from the asset-light franchise model. At the same time, management acknowledged cost pressures, currency impacts, and continued investment in digital platforms. Overall, the company emphasized stable cash generation and consistent shareholder returns.
6. Summary ✅
McDonald’s remains a highly profitable global restaurant company built on a franchise-heavy model that supports strong operating margins and consistent cash flow. Revenue and operating income continued to grow in FY2025, while margins stayed in the mid-40% range at the operating level. The company generates substantial operating cash flow, which management uses for capital investment, dividends, and share repurchases.
Although debt levels are significant and shareholders’ equity is negative due to long-term capital returns, interest coverage and cash generation indicate that the business continues to support its financial obligations. Digital initiatives, global scale, and franchise economics remain central to performance. Overall, the data shows a mature, cash-generative business model with steady profitability and disciplined capital allocation.
📝 Disclaimer
This article is intended for educational purposes only. It does not constitute financial, investment, or legal advice. All investment decisions involve risks, and readers should conduct their own research or consult with a licensed financial advisor.
👉 McDonald’s Corporation (MCD) FY 2025 10-K Key Highlights (Filed 2026) | Explained for Beginners