McDonald's Corporation (MCD) is a global powerhouse in the foodservice industry, but its financial engine is more complex than just selling burgers and fries. The company primarily operates as a franchisor, leveraging its brand, operational expertise, and significant real estate holdings to generate substantial and consistent cash flows.

The Business Model (How They Make Money)

McDonald's makes money in two main ways:

1. Franchised Restaurants: This is the core of McDonald's business. The company owns or leases the land and buildings for most of its restaurants and then rents them out to independent franchisees. These franchisees pay McDonald's rent, royalties (a percentage of their sales), and initial franchise fees. This model is highly profitable because McDonald's collects a steady stream of income without directly managing the day-to-day operations, labor, or food costs of most restaurants. As of year-end 2025, approximately 95% of McDonald's 45,356 restaurants worldwide were franchised. In fiscal year 2025, revenue from franchised restaurants was $16.548 billion, representing about 62% of the company's total reported revenue. The profit margin on franchised restaurants is significantly higher, with franchised restaurant margin at about 84% in 2025.

2. Company-Operated Restaurants: McDonald's directly owns and runs a smaller portion of its restaurants. In these locations, the company earns revenue directly from food sales to customers. While these restaurants contribute to overall sales, their profit margins are much lower due to the direct costs of running the business, such as food, labor, and utilities. In fiscal year 2025, company-operated restaurant sales were $9.690 billion.

Essentially, McDonald's acts as a global landlord and brand licensor, with its franchisees doing most of the heavy lifting in terms of daily restaurant operations.

The Metrics That Matter Most

For McDonald's, these 3 to 5 performance metrics are crucial for understanding its financial health:

1. Revenue: This is the total amount of money McDonald's brings in from both its franchised fees (rent and royalties) and sales from company-operated restaurants. For a company like McDonald's, consistent revenue growth shows that its brand remains strong and its global system is expanding, even if the growth rate isn't explosive. For the twelve months ending June 30, 2026, McDonald's reported total revenue of $27.7 billion. In fiscal year 2025, consolidated revenues increased 4% to $26.9 billion.

2. Operating Income: This metric tells us how much profit McDonald's makes from its core business operations after covering its direct costs, but before accounting for interest and taxes. For McDonald's, a high operating income highlights the profitability of its franchise model, where rent and royalty payments are high-margin. It shows how efficiently the company manages its global network. McDonald's consolidated operating income for the twelve months ending June 30, 2026, was $12.7 billion. In fiscal year 2025, operating income was $12.4 billion.

3. Free Cash Flow (FCF): This is the cash left over after McDonald's pays for its operating expenses and capital expenditures (like building new restaurants or renovating existing ones). Free cash flow is vital because it's the money the company can use for things like paying dividends to shareholders, buying back its own stock, or reducing debt. For a mature company like McDonald's, strong and consistent free cash flow indicates financial stability and the ability to return value to investors. McDonald's generated $7.761 billion in free cash flow for the trailing twelve months ending June 30, 2026. In fiscal year 2025, free cash flow was $7.2 billion.

4. Dividends: As a long-standing, profitable company, McDonald's is known for returning cash to its shareholders through dividends. This metric directly shows how much the company is paying out per share to its investors. Consistent and growing dividends are a sign of a healthy, stable business with confidence in its future earnings. McDonald's declared a quarterly cash dividend of $1.86 per share in October 2025, which equates to $7.44 annually. As of December 1, 2026, the annual dividend is $7.72 per share.

5. Return on Invested Capital (ROIC): This metric measures how effectively McDonald's uses all the money invested in its business (from both shareholders and lenders) to generate profits. For a company with significant real estate assets like McDonald's, ROIC is particularly important because it shows how well the company is utilizing its capital to produce returns. A high ROIC suggests efficient capital allocation and a strong competitive advantage. McDonald's Return on Invested Capital for the twelve months ending June 30, 2026, was 21.1%. For fiscal year 2025, it was 20.7%.

How to Value This Company

The ONE most relevant valuation metric for McDonald's is EV/EBITDA.

EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization) helps you figure out if a company's stock is cheap or expensive by looking at the total value of the business (including its debt) compared to its operating earnings before certain accounting adjustments.

Here's why it's particularly useful for McDonald's:

• Real Estate and Debt: McDonald's owns a lot of real estate, and this often comes with significant debt. EV/EBITDA is great because it considers the company's total value, including its debt, giving a more complete picture than just looking at the stock price alone.
• Capital-Intensive Business: The "EBITDA" part removes depreciation and amortization, which are non-cash expenses. This is helpful for companies like McDonald's that have a lot of physical assets (restaurants, land) that depreciate over time. It gives a clearer view of the cash-generating ability from its operations.
• Comparing Across Companies: Since it accounts for debt and removes non-cash items, EV/EBITDA makes it easier to compare McDonald's to other companies in the restaurant industry, even if they have different levels of debt or different ways of accounting for their assets.

To use it, you compare McDonald's EV/EBITDA ratio to its historical average or to similar companies. If McDonald's current EV/EBITDA is lower than its historical average or its peers, it might suggest the stock is "cheap." If it's higher, it might be considered "expensive." As of October 4, 2026, McDonald's EV/EBITDA for the trailing twelve months was 14.46x. For fiscal year 2025, the EV/EBITDA was 18.8x.