Intrinsic value of McDonald's - MCD

Previous Close

$158.90

  Intrinsic Value

$12.13

stock screener

  Rating & Target

str. sell

-92%

  Value-price divergence*

-51%

Previous close

$158.90

 
Intrinsic value

$12.13

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence*

-51%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MCD stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 132.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -3.11
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  24,622
  25,114
  25,692
  26,352
  27,094
  27,915
  28,816
  29,798
  30,860
  32,004
  33,233
  34,547
  35,949
  37,442
  39,028
  40,712
  42,496
  44,385
  46,382
  48,492
  50,720
  53,071
  55,550
  58,164
  60,917
  63,817
  66,871
  70,085
  73,467
  77,025
  80,767
Variable operating expenses, $m
 
  18,053
  18,462
  18,931
  19,457
  20,040
  20,679
  21,375
  22,129
  22,941
  23,813
  24,511
  25,506
  26,565
  27,691
  28,885
  30,151
  31,491
  32,908
  34,405
  35,986
  37,654
  39,413
  41,268
  43,221
  45,279
  47,445
  49,726
  52,125
  54,650
  57,305
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  16,877
  18,053
  18,462
  18,931
  19,457
  20,040
  20,679
  21,375
  22,129
  22,941
  23,813
  24,511
  25,506
  26,565
  27,691
  28,885
  30,151
  31,491
  32,908
  34,405
  35,986
  37,654
  39,413
  41,268
  43,221
  45,279
  47,445
  49,726
  52,125
  54,650
  57,305
Operating income, $m
  7,745
  7,062
  7,230
  7,421
  7,637
  7,875
  8,137
  8,422
  8,731
  9,063
  9,420
  10,036
  10,443
  10,876
  11,337
  11,826
  12,345
  12,893
  13,473
  14,086
  14,734
  15,417
  16,137
  16,896
  17,696
  18,538
  19,425
  20,359
  21,341
  22,375
  23,462
EBITDA, $m
  9,262
  8,692
  8,892
  9,121
  9,377
  9,662
  9,974
  10,313
  10,681
  11,077
  11,502
  11,957
  12,442
  12,959
  13,508
  14,091
  14,708
  15,362
  16,053
  16,783
  17,555
  18,368
  19,226
  20,131
  21,084
  22,088
  23,145
  24,257
  25,427
  26,659
  27,954
Interest expense (income), $m
  874
  908
  742
  765
  791
  820
  853
  889
  928
  970
  1,015
  1,064
  1,116
  1,172
  1,231
  1,294
  1,361
  1,431
  1,506
  1,586
  1,669
  1,758
  1,851
  1,949
  2,053
  2,162
  2,277
  2,398
  2,526
  2,660
  2,801
Earnings before tax, $m
  6,866
  6,153
  6,488
  6,657
  6,846
  7,055
  7,284
  7,534
  7,803
  8,094
  8,405
  8,972
  9,327
  9,705
  10,106
  10,533
  10,984
  11,462
  11,967
  12,501
  13,064
  13,659
  14,286
  14,947
  15,643
  16,376
  17,148
  17,961
  18,816
  19,715
  20,661
Tax expense, $m
  2,179
  1,661
  1,752
  1,797
  1,848
  1,905
  1,967
  2,034
  2,107
  2,185
  2,269
  2,422
  2,518
  2,620
  2,729
  2,844
  2,966
  3,095
  3,231
  3,375
  3,527
  3,688
  3,857
  4,036
  4,224
  4,422
  4,630
  4,849
  5,080
  5,323
  5,578
Net income, $m
  4,687
  4,492
  4,736
  4,859
  4,997
  5,150
  5,318
  5,500
  5,696
  5,908
  6,136
  6,549
  6,809
  7,085
  7,378
  7,689
  8,018
  8,367
  8,736
  9,126
  9,537
  9,971
  10,429
  10,911
  11,419
  11,955
  12,518
  13,111
  13,735
  14,392
  15,082

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,368
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  31,024
  31,630
  32,358
  33,189
  34,123
  35,157
  36,293
  37,529
  38,867
  40,308
  41,855
  43,510
  45,276
  47,156
  49,154
  51,274
  53,521
  55,900
  58,415
  61,073
  63,879
  66,840
  69,963
  73,254
  76,722
  80,375
  84,220
  88,268
  92,527
  97,008
  101,722
Adjusted assets (=assets-cash), $m
  29,656
  31,630
  32,358
  33,189
  34,123
  35,157
  36,293
  37,529
  38,867
  40,308
  41,855
  43,510
  45,276
  47,156
  49,154
  51,274
  53,521
  55,900
  58,415
  61,073
  63,879
  66,840
  69,963
  73,254
  76,722
  80,375
  84,220
  88,268
  92,527
  97,008
  101,722
Revenue / Adjusted assets
  0.830
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
Average production assets, $m
  22,187
  22,628
  23,149
  23,743
  24,411
  25,151
  25,963
  26,848
  27,805
  28,836
  29,943
  31,127
  32,390
  33,735
  35,164
  36,681
  38,289
  39,990
  41,790
  43,691
  45,699
  47,817
  50,051
  52,406
  54,886
  57,499
  60,251
  63,146
  66,193
  69,399
  72,771
Working capital, $m
  1,381
  100
  103
  105
  108
  112
  115
  119
  123
  128
  133
  138
  144
  150
  156
  163
  170
  178
  186
  194
  203
  212
  222
  233
  244
  255
  267
  280
  294
  308
  323
Total debt, $m
  25,956
  21,195
  21,850
  22,598
  23,439
  24,370
  25,391
  26,504
  27,708
  29,005
  30,397
  31,887
  33,476
  35,168
  36,967
  38,875
  40,897
  43,038
  45,302
  47,694
  50,219
  52,884
  55,694
  58,657
  61,778
  65,065
  68,526
  72,169
  76,003
  80,036
  84,278
Total liabilities, $m
  33,228
  28,467
  29,122
  29,870
  30,711
  31,642
  32,663
  33,776
  34,980
  36,277
  37,669
  39,159
  40,748
  42,440
  44,239
  46,147
  48,169
  50,310
  52,574
  54,966
  57,491
  60,156
  62,966
  65,929
  69,050
  72,337
  75,798
  79,441
  83,275
  87,308
  91,550
Total equity, $m
  -2,204
  3,163
  3,236
  3,319
  3,412
  3,516
  3,629
  3,753
  3,887
  4,031
  4,185
  4,351
  4,528
  4,716
  4,915
  5,127
  5,352
  5,590
  5,842
  6,107
  6,388
  6,684
  6,996
  7,325
  7,672
  8,037
  8,422
  8,827
  9,253
  9,701
  10,172
Total liabilities and equity, $m
  31,024
  31,630
  32,358
  33,189
  34,123
  35,158
  36,292
  37,529
  38,867
  40,308
  41,854
  43,510
  45,276
  47,156
  49,154
  51,274
  53,521
  55,900
  58,416
  61,073
  63,879
  66,840
  69,962
  73,254
  76,722
  80,374
  84,220
  88,268
  92,528
  97,009
  101,722
Debt-to-equity ratio
  -11.777
  6.700
  6.750
  6.810
  6.870
  6.930
  7.000
  7.060
  7.130
  7.200
  7.260
  7.330
  7.390
  7.460
  7.520
  7.580
  7.640
  7.700
  7.760
  7.810
  7.860
  7.910
  7.960
  8.010
  8.050
  8.100
  8.140
  8.180
  8.210
  8.250
  8.290
Adjusted equity ratio
  -0.120
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4,687
  4,492
  4,736
  4,859
  4,997
  5,150
  5,318
  5,500
  5,696
  5,908
  6,136
  6,549
  6,809
  7,085
  7,378
  7,689
  8,018
  8,367
  8,736
  9,126
  9,537
  9,971
  10,429
  10,911
  11,419
  11,955
  12,518
  13,111
  13,735
  14,392
  15,082
Depreciation, amort., depletion, $m
  1,517
  1,630
  1,663
  1,699
  1,741
  1,786
  1,836
  1,891
  1,950
  2,014
  2,082
  1,921
  1,999
  2,082
  2,171
  2,264
  2,364
  2,469
  2,580
  2,697
  2,821
  2,952
  3,090
  3,235
  3,388
  3,549
  3,719
  3,898
  4,086
  4,284
  4,492
Funds from operations, $m
  6,227
  6,122
  6,399
  6,559
  6,738
  6,936
  7,154
  7,390
  7,646
  7,922
  8,218
  8,471
  8,808
  9,167
  9,548
  9,953
  10,382
  10,836
  11,316
  11,823
  12,358
  12,923
  13,518
  14,146
  14,807
  15,504
  16,237
  17,009
  17,821
  18,676
  19,575
Change in working capital, $m
  167
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
Cash from operations, $m
  6,060
  6,120
  6,396
  6,556
  6,735
  6,933
  7,150
  7,387
  7,642
  7,917
  8,213
  8,465
  8,802
  9,161
  9,542
  9,946
  10,375
  10,828
  11,308
  11,814
  12,349
  12,913
  13,508
  14,136
  14,796
  15,492
  16,225
  16,996
  17,808
  18,662
  19,560
Maintenance CAPEX, $m
  0
  -1,370
  -1,397
  -1,429
  -1,466
  -1,507
  -1,553
  -1,603
  -1,657
  -1,716
  -1,780
  -1,848
  -1,921
  -1,999
  -2,082
  -2,171
  -2,264
  -2,364
  -2,469
  -2,580
  -2,697
  -2,821
  -2,952
  -3,090
  -3,235
  -3,388
  -3,549
  -3,719
  -3,898
  -4,086
  -4,284
New CAPEX, $m
  -1,821
  -441
  -520
  -595
  -668
  -740
  -812
  -884
  -957
  -1,031
  -1,107
  -1,184
  -1,263
  -1,345
  -1,429
  -1,517
  -1,607
  -1,702
  -1,799
  -1,901
  -2,007
  -2,118
  -2,234
  -2,355
  -2,481
  -2,613
  -2,751
  -2,896
  -3,047
  -3,206
  -3,372
Cash from investing activities, $m
  -982
  -1,811
  -1,917
  -2,024
  -2,134
  -2,247
  -2,365
  -2,487
  -2,614
  -2,747
  -2,887
  -3,032
  -3,184
  -3,344
  -3,511
  -3,688
  -3,871
  -4,066
  -4,268
  -4,481
  -4,704
  -4,939
  -5,186
  -5,445
  -5,716
  -6,001
  -6,300
  -6,615
  -6,945
  -7,292
  -7,656
Free cash flow, $m
  5,078
  4,310
  4,479
  4,532
  4,602
  4,686
  4,786
  4,900
  5,028
  5,170
  5,326
  5,433
  5,618
  5,817
  6,030
  6,259
  6,503
  6,763
  7,040
  7,333
  7,645
  7,974
  8,323
  8,691
  9,081
  9,491
  9,925
  10,381
  10,863
  11,370
  11,904
Issuance/(repayment) of debt, $m
  2,670
  -4,761
  655
  748
  840
  931
  1,022
  1,112
  1,204
  1,297
  1,392
  1,489
  1,589
  1,692
  1,798
  1,908
  2,022
  2,141
  2,264
  2,392
  2,526
  2,665
  2,810
  2,962
  3,121
  3,287
  3,461
  3,643
  3,833
  4,033
  4,242
Issuance/(repurchase) of shares, $m
  -10,872
  875
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -8,204
  -3,886
  655
  748
  840
  931
  1,022
  1,112
  1,204
  1,297
  1,392
  1,489
  1,589
  1,692
  1,798
  1,908
  2,022
  2,141
  2,264
  2,392
  2,526
  2,665
  2,810
  2,962
  3,121
  3,287
  3,461
  3,643
  3,833
  4,033
  4,242
Total cash flow (excl. dividends), $m
  -3,230
  424
  5,134
  5,281
  5,442
  5,617
  5,807
  6,012
  6,232
  6,467
  6,718
  6,923
  7,207
  7,509
  7,829
  8,167
  8,525
  8,904
  9,303
  9,725
  10,170
  10,639
  11,133
  11,654
  12,202
  12,779
  13,386
  14,024
  14,696
  15,403
  16,146
Retained Cash Flow (-), $m
  9,292
  -5,367
  -73
  -83
  -93
  -103
  -114
  -124
  -134
  -144
  -155
  -165
  -177
  -188
  -200
  -212
  -225
  -238
  -252
  -266
  -281
  -296
  -312
  -329
  -347
  -365
  -385
  -405
  -426
  -448
  -471
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -4,943
  5,061
  5,198
  5,348
  5,514
  5,694
  5,888
  6,098
  6,323
  6,564
  6,757
  7,030
  7,321
  7,629
  7,955
  8,301
  8,666
  9,052
  9,459
  9,889
  10,343
  10,821
  11,325
  11,855
  12,413
  13,001
  13,620
  14,270
  14,955
  15,674
Discount rate, %
 
  12.80
  13.44
  14.11
  14.82
  15.56
  16.34
  17.15
  18.01
  18.91
  19.86
  20.85
  21.89
  22.99
  24.14
  25.34
  26.61
  27.94
  29.34
  30.80
  32.34
  33.96
  35.66
  37.44
  39.32
  41.28
  43.35
  45.51
  47.79
  50.18
  52.69
PV of cash for distribution, $m
 
  -4,382
  3,933
  3,498
  3,077
  2,676
  2,297
  1,944
  1,621
  1,330
  1,073
  842
  654
  497
  370
  269
  190
  131
  88
  58
  36
  22
  13
  8
  4
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

McDonaldÂ’s Corporation operates and franchises McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company's restaurants offer various food products, soft drinks, coffee, and other beverages. As of December 31, 2015, it operated 36,525 restaurants, including 30,081 franchised restaurants comprising 21,147 franchised to conventional franchisees, 5,529 licensed to developmental licensees, and 3,405 licensed to foreign affiliates; and 6,444 company-operated restaurants. The company has strategic partnerships with CITIC Limited, CITIC Capital, and The Carlyle Group to expand its business in Mainland China and Hong Kong. McDonaldÂ’s Corporation was founded in 1940 and is based in Oak Brook, Illinois.

FINANCIAL RATIOS  of  McDonald's (MCD)

Valuation Ratios
P/E Ratio 27.8
Price to Sales 5.3
Price to Book -59.1
Price to Tangible Book
Price to Cash Flow 21.5
Price to Free Cash Flow 30.7
Growth Rates
Sales Growth Rate -3.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0.4%
Cap. Spend. - 3 Yr. Gr. Rate -8.4%
Financial Strength
Quick Ratio 18
Current Ratio 0.4
LT Debt to Equity -1174.2%
Total Debt to Equity -1177.7%
Interest Coverage 9
Management Effectiveness
Return On Assets 15.3%
Ret/ On Assets - 3 Yr. Avg. 14.5%
Return On Total Capital 17.1%
Ret/ On T. Cap. - 3 Yr. Avg. 16.3%
Return On Equity 191.9%
Return On Equity - 3 Yr. Avg. 90.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 41.4%
Gross Margin - 3 Yr. Avg. 39.4%
EBITDA Margin 37.6%
EBITDA Margin - 3 Yr. Avg. 35.7%
Operating Margin 31.5%
Oper. Margin - 3 Yr. Avg. 29.5%
Pre-Tax Margin 27.9%
Pre-Tax Margin - 3 Yr. Avg. 26.8%
Net Profit Margin 19%
Net Profit Margin - 3 Yr. Avg. 18.1%
Effective Tax Rate 31.7%
Eff/ Tax Rate - 3 Yr. Avg. 32.7%
Payout Ratio 65.2%

MCD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MCD stock intrinsic value calculation we used $24622 million for the last fiscal year's total revenue generated by McDonald's. The default revenue input number comes from 2016 income statement of McDonald's. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MCD stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 12.8%, whose default value for MCD is calculated based on our internal credit rating of McDonald's, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of McDonald's.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MCD stock the variable cost ratio is equal to 71.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MCD stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for McDonald's.

Corporate tax rate of 27% is the nominal tax rate for McDonald's. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MCD stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MCD are equal to 90.1%.

Life of production assets of 16.2 years is the average useful life of capital assets used in McDonald's operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MCD is equal to 0.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-2204 million for McDonald's - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 834.793 million for McDonald's is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of McDonald's at the current share price and the inputted number of shares is $132.6 billion.

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COMPANY NEWS

▶ US Market Indexes Gain on Wednesday   [Aug-17-17 10:53AM  GuruFocus.com]
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▶ McDonald's China Chairman Sees Room to Grow in China   [Aug-14-17 09:01PM  Bloomberg Video]
▶ Better Buy: McDonald's vs. Coca-Cola   [Aug-12-17 02:00PM  Motley Fool]
▶ 3 Stocks Retirees Should Buy on a Market Pullback   [Aug-11-17 09:21PM  Motley Fool]
▶ Big names headline this year's Chicago Venture Summit   [07:40PM  American City Business Journals]
▶ McDonald's to add 2000 restaurants in China   [11:44AM  Reuters Videos]
▶ Decision Time for Walt Disney Co (DIS) Stock   [08:51AM  InvestorPlace]
▶ McDonald's Doubling China Locations by 2022   [08:10AM  TheStreet.com]
▶ McDonald's to Finally Make Investors Nauseous?   [Aug-07-17 07:40PM  TheStreet.com]
▶ The 3 Stocks on the MFM Team's Radar This Week   [Aug-06-17 10:02PM  Motley Fool]
▶ The Job Market Is Getting Too Strong For The Federal Reserve   [10:40AM  Investor's Business Daily]
▶ Inspecting the Dow's top 10 stocks   [Aug-03-17 07:09PM  CNBC Videos]
▶ The Big Number For Stocks In Friday's Jobs Report Isn't Jobs   [04:23PM  Investor's Business Daily]
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▶ Dow Jones Crosses 22,000   [10:42AM  GuruFocus.com]
▶ Why McDonalds Shares Could Fall 20%   [06:00AM  Investopedia]
▶ Burger King Parent Restaurant Brands Earnings Top, Sales Miss   [04:03PM  Investor's Business Daily]
▶ Why Analysts Are Favoring Buys on McDonalds   [09:07AM  Market Realist]
▶ Chipotle History: Everything Investors Need to Know   [Aug-01-17 09:08PM  Motley Fool]
▶ How Is McDonalds Expanding Its Business?   [07:39AM  Market Realist]
Stock chart of MCD Financial statements of MCD
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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