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McDonald's WACC %

:4.59% (As of Today)
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As of today (2021-10-23), McDonald's's weighted average cost of capital is 4.59%. McDonald's's ROIC % is 15.55% (calculated using TTM income statement data). McDonald's generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.


McDonald's WACC % Historical Data

The historical data trend for McDonald's's WACC % can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

McDonald's Annual Data
Trend Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Dec17 Dec18 Dec19 Dec20
WACC %
Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 6.19 6.36 4.47 3.07 3.91

McDonald's Quarterly Data
Sep16 Dec16 Mar17 Jun17 Sep17 Dec17 Mar18 Jun18 Sep18 Dec18 Mar19 Jun19 Sep19 Dec19 Mar20 Jun20 Sep20 Dec20 Mar21 Jun21
WACC % Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 3.84 4.01 3.91 4.60 4.47

Competitive Comparison

For the Restaurants subindustry, McDonald's's WACC %, along with its competitors' market caps and WACC % data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.

   

McDonald's WACC % Distribution

For the Restaurants industry and Consumer Cyclical sector, McDonald's's WACC % distribution charts can be found below:

* The bar in red indicates where McDonald's's WACC % falls into.



McDonald's WACC % Calculation

The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm's cost of capital. Generally speaking, a company's assets are financed by debt and equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances.

WACC=E/(E + D)*Cost of Equity+D/(E + D)*Cost of Debt*(1 - Tax Rate)

1. Weights:
Generally speaking, a company's assets are financed by debt and equity. We need to calculate the weight of equity and the weight of debt.
The market value of equity (E) is also called "Market Cap". As of today, McDonald's's market capitalization (E) is $178066.724 Mil.
The market value of debt is typically difficult to calculate, therefore, GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding the latest two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together. As of Jun. 2021, McDonald's's latest two-year average Short-Term Debt & Capital Lease Obligation was $1812.6 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligation was $47697 Mil. The total Book Value of Debt (D) is $49509.6 Mil.
a) weight of equity = E / (E + D) = 178066.724 / (178066.724 + 49509.6) = 0.7824
b) weight of debt = D / (E + D) = 49509.6 / (178066.724 + 49509.6) = 0.2176

2. Cost of Equity:
GuruFocus uses Capital Asset Pricing Model (CAPM) to calculate the required rate of return. The formula is:
Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free Rate of Return)
a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is updated daily. The current risk-free rate is 1.68000000%. Please go to Economic Indicators page for more information. Please note that we use the 10-Year Treasury Constant Maturity Rate of the country/region where the company is headquartered. If the data for that country/region is not available, then we will use the 10-Year Treasury Constant Maturity Rate of the United States as default.
b) Beta is the sensitivity of the expected excess asset returns to the expected excess market returns. McDonald's's beta is 0.61.
c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.
Cost of Equity = 1.68000000% + 0.61 * 6% = 5.34%

3. Cost of Debt:
GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.
As of Dec. 2020, McDonald's's interest expense (positive number) was $1218.1 Mil. Its total Book Value of Debt (D) is $49509.6 Mil.
Cost of Debt = 1218.1 / 49509.6 = 2.4603%.

4. Multiply by one minus Average Tax Rate:
GuruFocus uses the latest two-year average tax rate to do the calculation. The calculated average tax rate is limited to between 0% and 100%. If the calculated average tax rate is higher than 100%, it is set to 100%. If the calculated average tax rate is less than 0%, it is set to 0%.
The latest Two-year Average Tax Rate is 23.905%.

McDonald's's Weighted Average Cost Of Capital (WACC) for Today is calculated as:

WACC=E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate)
=0.7824*5.34%+0.2176*2.4603%*(1 - 23.905%)
=4.59%

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.


McDonald's  (NYSE:MCD) WACC % Explanation

Because it costs money to raise capital. A firm that generates higher ROIC % than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.

As of today, McDonald's's weighted average cost of capital is 4.59%. McDonald's's ROIC % is 15.55% (calculated using TTM income statement data). McDonald's generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.


Be Aware

1. GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding latest two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together.

2. The WACC formula discussed above does not include Preferred Stock. Please adjust if preferred stock is considered.

3. (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.

4. GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.


Related Terms

McDonald's Business Description

McDonald's logo
Industry
Consumer Cyclical » Restaurants NAICS : 722513 SIC : 5812
Address
110 North Carpenter Street, Chicago, IL, USA, 60607
McDonald's Corporation is the largest restaurant owner-operator in the world, with 2020 systemwide sales of $93 billion across 39,000 stores and 119 countries. McDonald's revolutionized the restaurant industry with a cheap and fast core menu, building its impressive footprint through partnerships with independent restaurant franchisees. The firm earns 57% of its revenue from franchise royalty fees and lease payments, with the remainder coming from company-operated stores across its three core segments: the United States, internationally operated markets, and international developmental/licensed. McDonald's owns 55% of the real estate and 80% of the buildings in its franchise system, offering it substantial leverage in maintaining quality standards and consistency across markets.
Executives
Fallon Katherine Beirne officer: EVP - Chief Gl. Impact Officer C/O ANNALY CAPITAL MANAGEMENT, INC. 1211 AVENUE OF THE AMERICAS NEW YORK NY 10036
Rogers John W Jr director ARIEL CAPITAL MANAGEMENT, INC. 200 EAST RANDOLPH DRIVE, SUITE 2900 CHICAGO IL 60601
Dean Lloyd H director 185 BERRY STREET, SUITE 300 SAN FRANCISCO CA 94107
Capozzi Heidi B officer: EVP - Chief People Officer C/O THE BOEING COMPANY 100 RIVERSIDE PLAZA CHICAGO IL 60606-1596
Hernandez Enrique Jr director, other: Non-Exec Chairman of the Board INTER-CON SECURITY SYSTEMS, INC. 210 SOUTH DELACEY AVENUE PASADENA CA 91105
Kempczinski Christopher J director, officer: President and CEO THREE LAKES DRIVE NORTHFIELD IL 60093
Engelbert Catherine M. director 110 NORTH CARPENTER STREET CHICAGO IL 60607
Walsh Paul S director 8 HENRIETTA PLACE LONDON X0 94111
Penrose Sheila A director PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> Ownership Information: PENROSE SHEILA A a.header:link {color: #3b4fae; font-weight: bold; text-decoration: underline;} a.header:visited {color: #3b4fae; font-weight: bold; text-decoration: underline;} a.header:hover {color: #191970;}
White Miles D director PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> Ownership Information: WHITE MILES D a.header:link {color: #3b4fae; font-weight: bold; text-decoration: underline;} a.header:visited {color: #3b4fae; font-weight: bold; text-decoration: underline;} a.header:hover {color: #191970;}
Mckenna Andrew J other: Chairman Emeritus 233 NORTH MICHIGAN AVENUE 22ND FLOOR CHICAGO IL 60601
Eckert Robert director MATTEL, INC., 333 CONTINENTAL BLVD M1-1518 EL SEGUNDO CA 90245
Lenny Richard H director ILLINOIS TOOL WORKS INC. 155 HARLEM AVE. GLENVIEW IL 60025
Georgiadis Mary Margaret Hastings director 2500 LAKE COOK ROAD RIVERWOODS IL 60015
Mulligan John J director 1000 NICOLLET MALL TPS-2672 MINNEAPOLIS MN 55403

McDonald's Headlines

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