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McDonald’s Corp. (MCD)

Analysis of Property, Plant and Equipment

Advanced level

Accounting Policy on Property, Plant and Equipment

Property and equipment are stated at cost, with depreciation and amortization provided using the straight-line method over the following estimated useful lives: buildings–up to 40 years; leasehold improvements–the lesser of useful lives of assets or lease terms, which generally include certain option periods; and equipment–3 to 12 years.

Source: 10-K (filing date: 2019-02-22).

Property, Plant and Equipment Disclosure

McDonald’s Corp., balance sheet: property, plant and equipment

US$ in thousands

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Land 5,521,400  5,662,200  5,465,000  5,582,500  5,788,400 
Buildings and improvements on owned land 15,377,400  14,776,900  13,695,200  14,011,700  14,322,400 
Buildings and improvements on leased land 12,863,600  12,509,200  11,511,900  12,892,900  13,284,000 
Equipment, signs and seating 2,942,600  3,165,700  3,270,900  4,658,500  5,113,800 
Other 488,600  512,400  500,400  546,800  617,500 
Property and equipment, at cost 37,193,600  36,626,400  34,443,400  37,692,400  39,126,100 
Accumulated depreciation and amortization (14,350,900) (14,178,100) (13,185,800) (14,574,800) (14,568,600)
Net property and equipment 22,842,700  22,448,300  21,257,600  23,117,600  24,557,500 

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-03-01), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-24).

Item Description The company
Property and equipment, at cost Amount before accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. McDonald’s Corp.’s property and equipment, at cost increased from 2016 to 2017 and from 2017 to 2018.
Net property and equipment Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. McDonald’s Corp.’s net property and equipment increased from 2016 to 2017 and from 2017 to 2018.

Asset Age Ratios (Summary)

McDonald’s Corp., asset age ratios

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Average age ratio 45.31% 45.79% 45.50% 45.39% 43.70%
Estimated total useful life (years) 24 25 21 22 22
Estimated age, time elapsed since purchase (years) 11 12 9 10 9
Estimated remaining life (years) 13 14 11 12 12

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-03-01), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-24).

Asset age ratio Description The company
Average age ratio As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company’s fixed asset base is old or new. Newer assets are likely to be more efficient. McDonald’s Corp.’s average age ratio of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Estimated total useful life Over longer time periods, this ratio is a useful measure of company’s depreciation policy and can be used for comparisons with competitors. McDonald’s Corp.’s estimated total useful life of depreciable property, plant and equipment increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.
Estimated time elapsed since purchase The approximate age in years of a company’s fixed assets. Useful for comparison purposes. McDonald’s Corp.’s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Estimated remaining life McDonald’s Corp.’s estimated remaining life of depreciable property, plant and equipment increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.

Average Age

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in thousands)
Accumulated depreciation and amortization 14,350,900  14,178,100  13,185,800  14,574,800  14,568,600 
Property and equipment, at cost 37,193,600  36,626,400  34,443,400  37,692,400  39,126,100 
Land 5,521,400  5,662,200  5,465,000  5,582,500  5,788,400 
Asset Age Ratio
Average age1 45.31% 45.79% 45.50% 45.39% 43.70%

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-03-01), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Average age = 100 × Accumulated depreciation and amortization ÷ (Property and equipment, at cost – Land)
= 100 × 14,350,900 ÷ (37,193,600 – 5,521,400) = 45.31%

Asset age ratio Description The company
Average age As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company’s fixed asset base is old or new. Newer assets are likely to be more efficient. McDonald’s Corp.’s average age ratio of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Estimated Total Useful Life

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in thousands)
Property and equipment, at cost 37,193,600  36,626,400  34,443,400  37,692,400  39,126,100 
Land 5,521,400  5,662,200  5,465,000  5,582,500  5,788,400 
Depreciation and amortization expense for property and equipment 1,302,900  1,227,500  1,390,700  1,438,000  1,539,300 
Asset Age Ratio (Years)
Estimated total useful life1 24 25 21 22 22

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-03-01), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Estimated total useful life = (Property and equipment, at cost – Land) ÷ Depreciation and amortization expense for property and equipment
= (37,193,600 – 5,521,400) ÷ 1,302,900 = 24

Asset age ratio Description The company
Estimated total useful life Over longer time periods, this ratio is a useful measure of company’s depreciation policy and can be used for comparisons with competitors. McDonald’s Corp.’s estimated total useful life of depreciable property, plant and equipment increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.

Estimated Age, Time Elapsed since Purchase

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in thousands)
Accumulated depreciation and amortization 14,350,900  14,178,100  13,185,800  14,574,800  14,568,600 
Depreciation and amortization expense for property and equipment 1,302,900  1,227,500  1,390,700  1,438,000  1,539,300 
Asset Age Ratio (Years)
Time elapsed since purchase1 11 12 9 10 9

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-03-01), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Time elapsed since purchase = Accumulated depreciation and amortization ÷ Depreciation and amortization expense for property and equipment
= 14,350,900 ÷ 1,302,900 = 11

Asset age ratio Description The company
Estimated time elapsed since purchase The approximate age in years of a company’s fixed assets. Useful for comparison purposes. McDonald’s Corp.’s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Estimated Remaining Life

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in thousands)
Net property and equipment 22,842,700  22,448,300  21,257,600  23,117,600  24,557,500 
Land 5,521,400  5,662,200  5,465,000  5,582,500  5,788,400 
Depreciation and amortization expense for property and equipment 1,302,900  1,227,500  1,390,700  1,438,000  1,539,300 
Asset Age Ratio (Years)
Estimated remaining life1 13 14 11 12 12

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-03-01), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Estimated remaining life = (Net property and equipment – Land) ÷ Depreciation and amortization expense for property and equipment
= (22,842,700 – 5,521,400) ÷ 1,302,900 = 13

Asset age ratio Description The company
Estimated remaining life McDonald’s Corp.’s estimated remaining life of depreciable property, plant and equipment increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.