In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

McDonald’s Corp., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 9.71%
0¹	FCFF₀	8,302,127
1	FCFF₁	8,971,121	= 8,302,127 × (1 + 8.06%)	8,177,093
2	FCFF₂	9,647,338	= 8,971,121 × (1 + 7.54%)	8,015,156
3	FCFF₃	10,324,323	= 9,647,338 × (1 + 7.02%)	7,818,408
4	FCFF₄	10,995,088	= 10,324,323 × (1 + 6.50%)	7,589,405
5	FCFF₅	11,652,214	= 10,995,088 × (1 + 5.98%)	7,331,110
5	Terminal value (TV₅)	330,721,628	= 11,652,214 × (1 + 5.98%) ÷ (9.71% – 5.98%)	208,076,896
Intrinsic value of McDonald’s Corp. capital				247,008,068
Less: Debt obligations and finance lease liability (fair value)				39,975,500
Intrinsic value of McDonald’s Corp. common stock				207,032,568

Intrinsic value of McDonald’s Corp. common stock (per share)				$286.73
Current share price				$270.98

Based on: 10-K (reporting date: 2023-12-31).

¹ See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

McDonald’s Corp., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	195,661,512	0.83	11.10%
Debt obligations and finance lease liability (fair value)	39,975,500	0.17	2.93%	= 3.72% × (1 – 21.16%)

Based on: 10-K (reporting date: 2023-12-31).

¹ US$ in thousands

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 722,051,488 × $270.98
= $195,661,512,218.24

Debt obligations and finance lease liability (fair value). See details »

² Required rate of return on equity is estimated by using CAPM. See details »

Required rate of return on debt. See details »

Required rate of return on debt is after tax.

Estimated (average) effective income tax rate
= (19.50% + 21.10% + 17.30% + 23.00% + 24.90%) ÷ 5
= 21.16%

WACC = 9.71%

FCFF growth rate (g) implied by PRAT model

McDonald’s Corp., PRAT model

	Average	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in thousands)
Interest expense, net of capitalized interest		1,360,800)	1,207,000)	1,185,800)	1,218,100)	1,121,900)
Net income		8,468,800)	6,177,400)	7,545,200)	4,730,500)	6,025,400)

Effective income tax rate (EITR)¹		19.50%	21.10%	17.30%	23.00%	24.90%

Interest expense, net of capitalized interest, after tax²		1,095,444)	952,323)	980,657)	937,937)	842,547)
Add: Common stock cash dividends		4,532,800)	4,168,200)	3,918,600)	3,752,900)	3,581,900)
Interest expense (after tax) and dividends		5,628,244)	5,120,523)	4,899,257)	4,690,837)	4,424,447)

EBIT(1 – EITR)³		9,564,244)	7,129,723)	8,525,857)	5,668,437)	6,867,947)

Short-term borrowings and current maturities of long-term debt		2,192,400)	—)	—)	2,243,600)	59,100)
Current finance lease liability		45,500)	21,500)	—)	—)	—)
Long-term debt, excluding current maturities		37,152,900)	35,903,500)	35,622,700)	35,196,800)	34,118,100)
Long-term finance lease liability		1,530,000)	1,300,200)	—)	—)	—)
Shareholders’ equity (deficit)		(4,706,700)	(6,003,400)	(4,601,000)	(7,824,900)	(8,210,300)
Total capital		36,214,100)	31,221,800)	31,021,700)	29,615,500)	25,966,900)
Financial Ratios
Retention rate (RR)⁴		0.41	0.28	0.43	0.17	0.36
Return on invested capital (ROIC)⁵		26.41%	22.84%	27.48%	19.14%	26.45%
Averages
RR	0.33
ROIC	24.46%

FCFF growth rate (g)⁶	8.06%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

¹ See details »

2023 Calculations

² Interest expense, net of capitalized interest, after tax = Interest expense, net of capitalized interest × (1 – EITR)
= 1,360,800 × (1 – 19.50%)
= 1,095,444

³ EBIT(1 – EITR) = Net income + Interest expense, net of capitalized interest, after tax
= 8,468,800 + 1,095,444
= 9,564,244

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [9,564,244 – 5,628,244] ÷ 9,564,244
= 0.41

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 9,564,244 ÷ 36,214,100
= 26.41%

⁶ g = RR × ROIC
= 0.33 × 24.46%
= 8.06%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (235,637,012 × 9.71% – 8,302,127) ÷ (235,637,012 + 8,302,127)
= 5.98%

where:

Total capital, fair value₀ = current fair value of McDonald’s Corp. debt and equity (US$ in thousands)
FCFF₀ = the last year McDonald’s Corp. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of McDonald’s Corp. capital

FCFF growth rate (g) forecast

McDonald’s Corp., H-model

Year	Value	g_t
1	g₁	8.06%
2	g₂	7.54%
3	g₃	7.02%
4	g₄	6.50%
5 and thereafter	g₅	5.98%

where:
g₁ is implied by PRAT model
g₅ is implied by single-stage model
g₂, g₃ and g₄ are calculated using linear interpoltion between g₁ and g₅

Calculations

g₂ = g₁ + (g₅ – g₁) × (2 – 1) ÷ (5 – 1)
= 8.06% + (5.98% – 8.06%) × (2 – 1) ÷ (5 – 1)
= 7.54%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 8.06% + (5.98% – 8.06%) × (3 – 1) ÷ (5 – 1)
= 7.02%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 8.06% + (5.98% – 8.06%) × (4 – 1) ÷ (5 – 1)
= 6.50%

McDonald’s Corp. (NYSE:MCD)

Present Value of Free Cash Flow to the Firm (FCFF)

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

FCFF growth rate (g) implied by single-stage model

FCFF growth rate (g) forecast