Intrinsic value of McDonald's - MCD

Previous Close

$166.30

  Intrinsic Value

$12.53

stock screener

  Rating & Target

str. sell

-92%

  Value-price divergence*

-120%

Previous close

$166.30

 
Intrinsic value

$12.53

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence*

-120%

*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 135.1

 

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
  906
  699
  721
  746
  774
  805
  839
  876
  917
  960
  1,007
  1,057
  1,110
  1,166
  1,227
  1,291
  1,358
  1,430
  1,506
  1,586
  1,670
  1,760
  1,854
  1,953
  2,057
  2,167
  2,283
  2,405
  2,534
  2,669
Earnings before tax, $m
  6,866
  6,156
  6,531
  6,701
  6,891
  7,102
  7,332
  7,583
  7,855
  8,147
  8,460
  9,029
  9,386
  9,767
  10,171
  10,600
  11,054
  11,535
  12,044
  12,581
  13,148
  13,746
  14,377
  15,042
  15,743
  16,481
  17,258
  18,076
  18,936
  19,841
  20,793
Tax expense, $m
  2,179
  1,662
  1,763
  1,809
  1,861
  1,917
  1,980
  2,047
  2,121
  2,200
  2,284
  2,438
  2,534
  2,637
  2,746
  2,862
  2,985
  3,114
  3,252
  3,397
  3,550
  3,711
  3,882
  4,061
  4,251
  4,450
  4,660
  4,880
  5,113
  5,357
  5,614
Net income, $m
  4,687
  4,494
  4,768
  4,892
  5,031
  5,184
  5,353
  5,536
  5,734
  5,947
  6,176
  6,591
  6,852
  7,130
  7,425
  7,738
  8,070
  8,421
  8,792
  9,184
  9,598
  10,035
  10,495
  10,981
  11,492
  12,031
  12,598
  13,195
  13,823
  14,484
  15,179

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
  30,258
  30,954
  31,750
  32,643
  33,633
  34,718
  35,901
  37,181
  38,560
  40,039
  41,623
  43,312
  45,110
  47,022
  49,050
  51,200
  53,475
  55,882
  58,424
  61,108
  63,941
  66,928
  70,077
  73,394
  76,888
  80,567
  84,439
  88,514
  92,801
  97,310
Adjusted assets (=assets-cash), $m
  29,656
  30,258
  30,954
  31,750
  32,643
  33,633
  34,718
  35,901
  37,181
  38,560
  40,039
  41,623
  43,312
  45,110
  47,022
  49,050
  51,200
  53,475
  55,882
  58,424
  61,108
  63,941
  66,928
  70,077
  73,394
  76,888
  80,567
  84,439
  88,514
  92,801
  97,310
Revenue / Adjusted assets
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
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
  19,961
  20,587
  21,303
  22,107
  22,997
  23,975
  25,039
  26,191
  27,432
  28,763
  30,188
  31,709
  33,327
  35,048
  36,873
  38,808
  40,856
  43,021
  45,310
  47,726
  50,275
  52,963
  55,797
  58,783
  61,928
  65,238
  68,723
  72,391
  76,249
  80,307
Total liabilities, $m
  33,228
  27,233
  27,859
  28,575
  29,379
  30,269
  31,247
  32,311
  33,463
  34,704
  36,035
  37,460
  38,981
  40,599
  42,320
  44,145
  46,080
  48,128
  50,293
  52,582
  54,998
  57,547
  60,235
  63,069
  66,055
  69,200
  72,510
  75,995
  79,663
  83,521
  87,579
Total equity, $m
  -2,204
  3,026
  3,095
  3,175
  3,264
  3,363
  3,472
  3,590
  3,718
  3,856
  4,004
  4,162
  4,331
  4,511
  4,702
  4,905
  5,120
  5,348
  5,588
  5,842
  6,111
  6,394
  6,693
  7,008
  7,339
  7,689
  8,057
  8,444
  8,851
  9,280
  9,731
Total liabilities and equity, $m
  31,024
  30,259
  30,954
  31,750
  32,643
  33,632
  34,719
  35,901
  37,181
  38,560
  40,039
  41,622
  43,312
  45,110
  47,022
  49,050
  51,200
  53,476
  55,881
  58,424
  61,109
  63,941
  66,928
  70,077
  73,394
  76,889
  80,567
  84,439
  88,514
  92,801
  97,310
Debt-to-equity ratio
  -11.777
  6.600
  6.650
  6.710
  6.770
  6.840
  6.910
  6.970
  7.040
  7.110
  7.180
  7.250
  7.320
  7.390
  7.450
  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
  8.220
  8.250
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
  4,494
  4,768
  4,892
  5,031
  5,184
  5,353
  5,536
  5,734
  5,947
  6,176
  6,591
  6,852
  7,130
  7,425
  7,738
  8,070
  8,421
  8,792
  9,184
  9,598
  10,035
  10,495
  10,981
  11,492
  12,031
  12,598
  13,195
  13,823
  14,484
  15,179
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
  6,124
  6,430
  6,591
  6,771
  6,970
  7,189
  7,427
  7,684
  7,961
  8,258
  8,512
  8,851
  9,212
  9,595
  10,002
  10,433
  10,889
  11,371
  11,881
  12,419
  12,986
  13,585
  14,216
  14,880
  15,580
  16,317
  17,093
  17,909
  18,768
  19,671
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
  6,122
  6,428
  6,588
  6,768
  6,967
  7,185
  7,423
  7,680
  7,956
  8,253
  8,507
  8,846
  9,206
  9,589
  9,995
  10,426
  10,882
  11,363
  11,872
  12,410
  12,977
  13,575
  14,205
  14,869
  15,569
  16,305
  17,080
  17,896
  18,754
  19,656
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
  4,312
  4,511
  4,565
  4,635
  4,720
  4,821
  4,936
  5,065
  5,209
  5,366
  5,475
  5,661
  5,862
  6,077
  6,308
  6,554
  6,816
  7,095
  7,392
  7,705
  8,038
  8,390
  8,761
  9,154
  9,568
  10,005
  10,465
  10,951
  11,462
  12,000
Issuance/(repayment) of debt, $m
  2,670
  -5,918
  626
  716
  804
  891
  977
  1,064
  1,152
  1,241
  1,332
  1,425
  1,520
  1,619
  1,720
  1,826
  1,935
  2,048
  2,166
  2,288
  2,416
  2,549
  2,688
  2,834
  2,986
  3,145
  3,311
  3,485
  3,667
  3,858
  4,058
Issuance/(repurchase) of shares, $m
  -10,872
  2,027
  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
  -3,891
  626
  716
  804
  891
  977
  1,064
  1,152
  1,241
  1,332
  1,425
  1,520
  1,619
  1,720
  1,826
  1,935
  2,048
  2,166
  2,288
  2,416
  2,549
  2,688
  2,834
  2,986
  3,145
  3,311
  3,485
  3,667
  3,858
  4,058
Total cash flow (excl. dividends), $m
  -3,230
  420
  5,137
  5,280
  5,438
  5,611
  5,798
  6,000
  6,217
  6,450
  6,698
  6,900
  7,181
  7,480
  7,798
  8,133
  8,489
  8,864
  9,261
  9,680
  10,121
  10,587
  11,078
  11,595
  12,139
  12,713
  13,316
  13,950
  14,618
  15,320
  16,059
Retained Cash Flow (-), $m
  9,292
  -6,521
  -70
  -80
  -89
  -99
  -109
  -118
  -128
  -138
  -148
  -158
  -169
  -180
  -191
  -203
  -215
  -228
  -241
  -254
  -268
  -283
  -299
  -315
  -332
  -349
  -368
  -387
  -407
  -429
  -451
Prev. year cash balance distribution, $m
 
  1,291
  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
 
  -4,810
  5,067
  5,201
  5,349
  5,512
  5,689
  5,882
  6,089
  6,312
  6,550
  6,741
  7,012
  7,301
  7,606
  7,931
  8,274
  8,637
  9,020
  9,426
  9,853
  10,304
  10,779
  11,280
  11,808
  12,363
  12,948
  13,563
  14,211
  14,891
  15,608
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
 
  -4,264
  3,938
  3,500
  3,078
  2,675
  2,295
  1,942
  1,619
  1,328
  1,071
  840
  652
  496
  369
  268
  190
  131
  88
  57
  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

McDonald's Corporation (McDonald's) operates and franchises McDonald's restaurants. The Company's restaurants serve a locally relevant menu of food and drinks sold at various price points in over 100 countries. The Company's segments include U.S., International Lead Markets, High Growth Markets, and Foundational Markets and Corporate. The U.S. segment focuses on offering a platform for authentic ingredients that allows customers to customize their sandwiches. Its High Growth Markets segment includes its operations in markets, such as China, Italy, Korea, Poland, Russia, Spain, Switzerland, the Netherlands and related markets. The International Lead markets segment includes the Company's operations in various markets, such as Australia, Canada, France, Germany, the United Kingdom and related markets. The Foundational markets and Corporate segment is engaged in operating restaurants and increasing convenience to customers, including through drive-thru and delivery.

FINANCIAL RATIOS  of  McDonald's (MCD)

Valuation Ratios
P/E Ratio 29.1
Price to Sales 5.5
Price to Book -61.8
Price to Tangible Book
Price to Cash Flow 22.5
Price to Free Cash Flow 32.1
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 812.114 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 $135.1 billion.

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COMPANY NEWS

▶ 3 Stocks That Put McDonald's Returns to Shame   [Oct-19-17 02:15PM  Motley Fool]
▶ McDonald's Szechuan Sauce Promotion Invites Trouble   [Oct-16-17 01:19PM  GuruFocus.com]
▶ 3 Stocks to Buy, Hold for the Next 75 Years   [Oct-12-17 09:45PM  Motley Fool]
▶ McDonald's bringing in Huge agency to upgrade the customer experience   [01:50PM  American City Business Journals]
▶ [$$] 4 Stocks Stuck in McDonald's Value-Menu Vise   [Oct-10-17 02:06PM  Barrons.com]
▶ How Does McDonalds Dividend Yield Look?   [10:39AM  Market Realist]
▶ Wendy's has new chicken tenders, too, and sauce (at all restaurants)   [Oct-09-17 02:05PM  American City Business Journals]
▶ McDonalds Szechuan Sauce Returns Oct. 7 for One Day Only   [Oct-06-17 04:07PM  InvestorPlace]
▶ Restaurant Stocks To Watch As Winners Emerge: Investing Action Plan   [Oct-05-17 04:32PM  Investor's Business Daily]
▶ Starbucks Growth Showing Signs of Trouble?   [08:55AM  24/7 Wall St.]
▶ Roundtable: 1 Stock I'm Never Selling   [Oct-03-17 08:01PM  Motley Fool]
▶ What Drives McDonalds Stock Price   [05:06PM  Market Realist]
▶ Gender Focus Proves Rewarding for This ETF   [10:05AM  Investopedia]
▶ McDonalds Outperforms Its Peers in Same-Store Sales Growth   [Oct-02-17 06:06PM  Market Realist]
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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