Last reviewed: September 11, 2026
McDonald’s Corporation (NYSE: MCD) is much more than a restaurant operator. Approximately 95% of its restaurants are franchised, allowing the company to collect rent and royalties from a system that generated $139.4 billion of sales in 2025. Franchisees supply much of the restaurant-level labor and capital, while McDonald’s controls the brand, operating standards, menu platform, digital ecosystem, and—in many conventional franchises—the underlying real estate.
This structure produces unusual economics: reported revenue is far below total customer spending across the system, but a large share of restaurant margin comes from capital-efficient franchise fees. The investment question is whether comparable sales, restaurant expansion, digital loyalty, and pricing can continue to grow those cash flows while maintaining consumer value and healthy franchisee returns.
Business model
At year-end 2025, McDonald’s had 45,356 restaurants in more than 100 countries. Roughly 95% were franchised. The company uses three principal structures: conventional franchises, developmental licenses, and affiliates.
- Conventional franchises: McDonald’s generally owns or secures a long-term lease for the property. The franchisee operates the restaurant and pays rent, royalties based on sales, and initial fees. Agreements generally run for 20 years.
- Developmental licenses: Licensees usually provide the restaurant capital and real-estate interest, operate the business, and pay McDonald’s royalties and initial fees.
- Affiliates: McDonald’s owns an equity interest in selected markets, notably China and Japan, and receives its share of results in addition to licensing economics.
- Company-operated restaurants: McDonald’s receives the entire restaurant sale but also bears food, paper, labor, occupancy, and operating costs.
In 2025, franchised restaurants generated $16.55 billion of reported revenue: $10.44 billion of rent, $6.02 billion of royalties, and $88 million of initial fees. Company-operated restaurants generated $9.69 billion of sales. Because franchised sales are recorded by franchisees rather than McDonald’s, investors should follow both consolidated revenue and Systemwide sales.
Latest financial results
| Metric | 2Q 2026 | Year-over-year change |
|---|---|---|
| Global comparable sales | +1.3% | U.S. +0.8%; IOM +1.5%; IDL +1.9% |
| Systemwide sales | About $37 billion | +5%; +4% constant currency |
| Consolidated revenue | $7.10 billion | +4%; +2% constant currency |
| Operating income | $3.34 billion | +3%; +2% constant currency |
| Net income | $2.36 billion | +5% |
| Diluted EPS | $3.32 | +6%; +5% constant currency |
| Franchised restaurant margin | $3.71 billion | +4% |
| Company-operated margin | $387 million | +2% |
Results included $52 million of pre-tax restructuring charges associated mainly with Accelerating the Organization, compared with $43 million a year earlier. Excluding those charges in both periods, operating income increased 4% reported and 2% in constant currencies. The difference between reported and constant-currency growth matters for a business with substantial international earnings.
The quarter was positive but not uniformly strong. U.S. comparable sales increased only 0.8%, and management appointed a new U.S. president to raise execution in its largest market. International markets performed somewhat better. Global Systemwide sales reached approximately $37 billion, illustrating the enormous base from which McDonald’s must grow.
Franchise economics
The franchised model is the core of the investment case. In 2025, franchised revenue of $16.55 billion had only $2.62 billion of related occupancy expense, producing $13.93 billion of franchised restaurant margin. By comparison, $9.69 billion of company-operated sales produced $1.42 billion of restaurant margin after food, labor, and occupancy costs. Franchised margins represented approximately 90% of total restaurant margin dollars.
Rent and royalties typically rise with restaurant sales, while minimum rents offer some contractual support. Franchisees handle daily operations, local staffing, and much of the capital burden. McDonald’s retains control of the underlying property and building in many conventional arrangements when the 20-year term ends. This combination of brand licensing and real-estate control helps explain the company’s 46.1% consolidated operating margin in 2025.
The model is not risk-free or passive. Franchisees must earn adequate returns after wages, food, utilities, rent, royalties, promotions, and required reinvestment. If restaurant economics weaken, operators may resist price, value, technology, or remodeling initiatives. McDonald’s revenue ultimately depends on healthy franchisee sales and cooperation.
2025 baseline and cash generation
For 2025, consolidated revenue increased 4% to $26.89 billion, Systemwide sales rose 7% to $139.4 billion, and operating income increased 6% to $12.39 billion. Net income was $8.56 billion and diluted EPS was $11.95. Cash from operations reached $10.6 billion, while capital expenditure was $3.37 billion, producing $7.2 billion of company-defined free cash flow.
In the first half of 2026, operating cash flow was $5.22 billion and capital spending was $1.52 billion, implying approximately $3.71 billion of free cash flow. Cash flow benefited from favorable working-capital changes and improved operations, so investors should avoid simply doubling the six-month result. McDonald’s paid $2.6 billion of dividends and repurchased $1.3 billion of shares during the period.
Capital intensity is rising as the system expands. McDonald’s opened nearly 2,300 restaurants across the system in 2025 and expected about 2,100 net additions in 2026. The company is targeting 50,000 global restaurants by the end of 2027 and indicated that 2027 capital expenditure could increase by another $300 million to $500 million sequentially. Developmental licensees and affiliates fund many openings, but McDonald’s still invests meaningfully in the U.S. and International Operated Markets.
Competitive advantages
- Global brand and consumer habit: McDonald’s benefits from high awareness, familiar products, convenient locations, and repeat purchasing.
- Scale: a large purchasing, advertising, technology, and supply-chain network supports cost efficiency and consistent execution.
- Franchise and real-estate system: local operators provide entrepreneurial execution while rent and royalties produce high-margin corporate cash flow.
- Digital loyalty: across 70 loyalty markets, trailing-twelve-month Systemwide sales to loyalty members exceeded $40 billion in 2Q 2026. Ninety-day active loyalty users grew 13% to nearly 220 million.
- Restaurant density: dense networks improve convenience, delivery economics, marketing reach, and brand visibility.
The loyalty platform can improve frequency, personalization, and promotional efficiency. It also gives McDonald’s first-party data that traditional mass advertising cannot provide. The long-term opportunity is to translate app engagement into incremental visits without training customers to purchase only when offered discounts.
Key risks
- Consumer value: menu inflation can damage traffic, especially among lower-income customers, while promotions may pressure franchisee profit.
- Cost inflation: wages, food, packaging, rent, utilities, and insurance affect company restaurants and franchisees.
- Franchisee alignment: operators must support remodeling, technology, pricing, staffing, and menu initiatives.
- Food safety and reputation: contamination, supply problems, advertising controversies, or service failures can damage trust globally.
- Competition: quick-service restaurants, convenience stores, grocery, delivery platforms, and local operators compete on price, quality, and convenience.
- International exposure: currency movements, regulation, geopolitical conflict, tariffs, and differing consumer conditions affect reported results.
- Debt and capital allocation: interest expense was $1.58 billion in 2025. Dividends, buybacks, development, and debt service compete for cash.
Valuation framework
A useful valuation model separates four drivers: comparable sales, net restaurant additions, franchised margin growth, and capital allocation. Comparable sales combine customer traffic and average check; units add new royalty and rent streams; franchise economics determine how much Systemwide growth reaches corporate profit; and dividends or repurchases determine per-share outcomes.
| Scenario | Operating assumptions | Valuation implication |
|---|---|---|
| Conservative | Flat traffic, modest pricing, slower unit growth, persistent cost pressure | Low earnings growth may justify a lower multiple |
| Base framework | Low-single-digit comparable sales, planned net openings, stable franchise health | Mid-single-digit operating growth plus capital returns |
| Strong execution | Higher traffic, loyalty-driven frequency, productive new units, improving U.S. execution | Faster cash-flow growth can support a premium |
These are analytical scenarios, not forecasts or price targets. Investors should also account for debt, lease obligations, cyclicality, and the possibility that an established defensive brand receives a valuation premium even when its growth rate is moderate.
Investor checklist
- Separate customer traffic from average-check growth in comparable sales.
- Compare U.S., International Operated Markets, and developmental license markets.
- Track Systemwide sales, franchised revenue, and franchised margin together.
- Watch franchisee cash flow, closures, restaurant investment, and operator alignment.
- Measure loyalty-member sales and active users against incremental visits and profitability.
- Review net unit additions, development spending, and returns on new restaurants.
- Compare operating cash flow, capital expenditure, free cash flow, dividends, buybacks, and debt.
- Recalculate valuation using conservative sales and margin assumptions.
For a repeatable approach, see our stock-analysis framework. More company reports are available in the Research hub.
Bottom line
McDonald’s has a durable business model built around a global consumer brand, local franchise operators, real estate, and high-margin rent and royalty streams. The system produces substantial free cash flow and is adding restaurants while expanding digital loyalty.
The latest quarter also shows the challenge of managing a mature network: global comparable sales were positive, but U.S. growth was modest and management wants stronger execution. Future shareholder returns depend on traffic, consumer value, franchisee health, productive unit growth, disciplined capital allocation, and the valuation paid. A resilient business does not eliminate price or operating risk.
Sources
- McDonald’s 2025 Form 10-K
- McDonald’s Second-Quarter 2026 Results
- McDonald’s Second-Quarter 2026 Form 10-Q
- McDonald’s Investor Relations
Educational disclaimer: This article is for educational and informational purposes only and is not investment, tax, or legal advice. It does not recommend buying or selling any security. Financial data, currency rates, and market prices can change after publication. Review current filings and consider your objectives, time horizon, and risk tolerance before making an investment decision.