Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
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McDonald’s Corp. pages available for free this week:
- Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Price to FCFE (P/FCFE)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Assets (ROA) since 2005
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
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Economic Profit
McDonald’s Corp., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2024-12-31), 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).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial data demonstrates several notable trends in profitability and capital management over the five-year period under review.
- Net Operating Profit After Taxes (NOPAT)
- There is an overall upward trajectory in NOPAT from 2020 to 2024. The figure increased significantly from 6,162 million USD in 2020 to a peak of 9,274 million USD in 2023, followed by a slight decline to 9,207 million USD in 2024. Despite the minor decrease in the final year, NOPAT remains substantially higher than the initial value in 2020, indicating strengthened operational profitability.
- Cost of Capital
- The cost of capital has experienced a steady increase each year, rising from 9.67% in 2020 to 10.57% in 2024. This gradual increase suggests a rising expense associated with financing the company's operations and capital investments.
- Invested Capital
- Invested capital shows some variability over the years. Beginning at 46,817 million USD in 2020, it slightly increased to 47,779 million USD in 2021 before decreasing to 45,461 million USD in 2022. Subsequently, it rose again to 50,097 million USD in 2023 and slightly decreased to 49,627 million USD in 2024. This pattern reflects fluctuations in the company's investments, possibly due to changes in asset acquisition or divestiture activities.
- Economic Profit
- Economic profit displays a positive trend with fluctuations. Starting at 1,636 million USD in 2020, it more than doubled to 3,686 million USD in 2021, then decreased to 2,394 million USD in 2022. In 2023, it regained momentum, rising to 4,042 million USD, and slightly decreased to 3,962 million USD in 2024. The sustained levels well above the 2020 baseline indicate continued value creation beyond the cost of capital, notwithstanding some volatility.
In summary, the company demonstrates strengthening operating profitability and economic value added throughout the period, despite an increasing cost of capital and fluctuations in invested capital. The data suggests effective management of operations and investments in a progressively more costly capital environment.
Net Operating Profit after Taxes (NOPAT)
McDonald’s Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 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).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in deferred revenues, initial franchise fees.
3 Addition of increase (decrease) in equity equivalents to net income.
4 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
5 2024 Calculation
Tax benefit of interest expense, net of capitalized interest = Adjusted interest expense, net of capitalized interest × Statutory income tax rate
= × 21.00% =
6 Addition of after taxes interest expense to net income.
The data reveals the financial performance of the company over a five-year period, highlighting trends in net income and net operating profit after taxes (NOPAT).
- Net Income
- There was a noticeable increase in net income from 2020 to 2021, rising from $4,731 million to $7,545 million. This was followed by a decline in 2022 to $6,177 million. Subsequently, net income rebounded strongly in 2023 to $8,469 million, before experiencing a slight decrease in 2024 to $8,223 million. Overall, net income exhibited volatility but maintained an upward trend across the period, ending significantly higher than the initial year.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated a similar pattern to net income across the five years. Starting at $6,162 million in 2020, it increased to $8,491 million in 2021, then declined to $7,131 million in 2022. The figure rose again in 2023 to $9,274 million and slightly decreased in 2024 to $9,207 million. The overall trend shows growth over the period with some fluctuations, indicating effective operational profitability maximized after tax impacts.
- Comparative Insights
- The parallel movement between net income and NOPAT suggests a consistent relationship between operating efficiency and overall profitability. Both metrics experienced peak values in 2023, followed by modest declines in 2024. Despite the dips in 2022 and 2024, the data reflects resilience and recovery in financial performance, emphasizing the company's ability to manage profits through varying economic conditions.
Cash Operating Taxes
McDonald’s Corp., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 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).
- Provision for Income Taxes
- The provision for income taxes shows a consistent upward trend from 2020 to 2024. Starting at 1,410 million USD in 2020, it increased moderately to 1,583 million USD in 2021, and 1,648 million USD in 2022. There was a more pronounced rise in 2023 to 2,053 million USD, followed by a smaller increase to 2,121 million USD in 2024. Overall, this indicates a steady growth in the anticipated income tax expense over the five-year period.
- Cash Operating Taxes
- Cash operating taxes also exhibit a clear upward trajectory during the same period. Beginning at 1,772 million USD in 2020, the amount rose significantly to 2,367 million USD in 2021. It remained relatively stable in 2022 with a slight decrease to 2,334 million USD but then surged to 3,128 million USD in 2023. In 2024, there was a marginal decrease to 3,112 million USD. Despite the minor fluctuations, the overall pattern reflects increasing cash tax outflows over the years.
- Comparative Insights
- Both provision for income taxes and cash operating taxes demonstrate upward trends, indicating increasing tax obligations and cash outflows related to taxes. The cash operating taxes consistently exceed the provision for income taxes each year, with the gap widening particularly in 2023 and 2024. This could imply differences in timing, payment schedules, or adjustments between the accrual-based provision and actual cash payments. The growth in tax-related expenses corresponds with expected increases in earnings or taxable income, reflecting an expansion in the company's tax base or changes in tax rates and regulations over time.
Invested Capital
McDonald’s Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 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).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of deferred revenues, initial franchise fees.
4 Addition of equity equivalents to shareholders’ equity (deficit).
5 Removal of accumulated other comprehensive income.
6 Subtraction of investments.
- Total Reported Debt & Leases
-
The total reported debt and leases values show a generally fluctuating trend over the five-year period. Beginning at 51,463 million US dollars in 2020, the amount decreased to 49,349 million in 2021 and further slightly declined to 48,699 million in 2022. However, a notable increase occurred in 2023, rising to 53,091 million before slightly decreasing again to 51,948 million in 2024. This pattern indicates a period of debt reduction followed by renewed borrowing or lease commitments, and then a minor contraction.
- Shareholders’ Equity (Deficit)
-
The shareholders’ equity, reported as a deficit throughout the period, displays a fluctuating but improving trend after an initial deterioration. Starting at a deficit of -7,825 million US dollars in 2020, the deficit narrowed to -4,601 million in 2021, suggesting an improvement in net assets. Subsequently, it worsened again to -6,003 million in 2022 but improved substantially to -4,707 million in 2023, and further to -3,797 million in 2024. Overall, despite remaining negative, the equity position shows a gradual reduction in deficit size toward the end of the period.
- Invested Capital
-
The invested capital shows moderate year-to-year variation. Starting at 46,817 million US dollars in 2020, it increased slightly to 47,779 million in 2021 before decreasing to 45,461 million in 2022. This is followed by a considerable increase to 50,097 million in 2023, before a slight decline to 49,627 million in 2024. The data suggests fluctuating levels of capital invested in the business, with a peak in 2023 and a mild reduction afterward but still maintaining a level above the initial years.
- Summary Insights
-
The overall financial structure reflects a company managing its debt and equity with some volatility. The fluctuations in total reported debt and leases indicate active adjustments in financing strategies. Despite a consistent equity deficit, the trend toward reducing the deficit over time is a positive sign of improving net asset value. Invested capital variations imply measured reinvestment and capital allocation strategies, with a peak in 2023 suggesting increased operational or strategic investment that is somewhat maintained in 2024. The combined trends show an entity engaged in dynamic financial management amid a negative but improving equity backdrop.
Cost of Capital
McDonald’s Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt obligations and finance lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt obligations and finance lease liability. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt obligations and finance lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt obligations and finance lease liability. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt obligations and finance lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt obligations and finance lease liability. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt obligations and finance lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt obligations and finance lease liability. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt obligations and finance lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt obligations and finance lease liability. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
McDonald’s Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Airbnb Inc. | ||||||
| Booking Holdings Inc. | ||||||
| Chipotle Mexican Grill Inc. | ||||||
| DoorDash, Inc. | ||||||
| Starbucks Corp. | ||||||
Based on: 10-K (reporting date: 2024-12-31), 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit Trends
- The economic profit demonstrates considerable fluctuations over the five-year period. Starting at 1,636 million US dollars in 2020, the value increased significantly to 3,686 million US dollars in 2021. However, it declined to 2,394 million US dollars in 2022 before rising again to 4,042 million US dollars in 2023. In 2024, economic profit slightly decreased to 3,962 million US dollars. Overall, there is a trend of volatility with notable peaks in 2021 and 2023.
- Invested Capital Movement
- Invested capital shows moderate variability but remains within a relatively narrow band throughout the years. The figure started at 46,817 million US dollars in 2020 and peaked at 50,097 million US dollars in 2023. It then slightly receded to 49,627 million US dollars in 2024. The general trend indicates a stable yet modest increase in invested capital over the period.
- Economic Spread Ratio Pattern
- The economic spread ratio exhibits a pattern that aligns closely with economic profit fluctuations. Beginning at 3.49% in 2020, it more than doubled to 7.71% in 2021, then declined to 5.27% in 2022. Subsequently, it climbed again to 8.07% in 2023 and slightly decreased to 7.98% in 2024. This trajectory reflects significant improvement in value creation efficiency in 2021 and 2023, with a mild reduction in subsequent years but maintaining an overall higher level than at the start of the period.
- Summary Insights
- The data reveals that while invested capital has seen a steady increase, economic profitability and efficiency, as measured by economic profit and economic spread ratio, have been more volatile. The years 2021 and 2023 stand out as periods of enhanced economic performance and value generation. Despite the fluctuations, the economic spread ratio remains consistently above the initial 2020 level from 2021 onward, indicating improved returns on invested capital. The slight decline in economic profit and spread ratio in 2024 suggests a small tapering of the previously strong profitability trend, but not a reversal to earlier lower levels.
Economic Profit Margin
McDonald’s Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Revenues | ||||||
| Add: Increase (decrease) in deferred revenues, initial franchise fees | ||||||
| Adjusted revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Airbnb Inc. | ||||||
| Booking Holdings Inc. | ||||||
| Chipotle Mexican Grill Inc. | ||||||
| DoorDash, Inc. | ||||||
| Starbucks Corp. | ||||||
Based on: 10-K (reporting date: 2024-12-31), 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).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × ÷ =
3 Click competitor name to see calculations.
The financial data reveals several notable trends over the five-year period from 2020 to 2024.
- Economic Profit
- Economic profit exhibited a significant increase from 1636 million USD in 2020 to a peak of 3686 million USD in 2021, representing more than a twofold rise. This was followed by a decline to 2394 million USD in 2022, before recovering again to 4042 million USD in 2023. In 2024, economic profit slightly decreased to 3962 million USD but remained at a relatively high level compared to earlier years.
- Adjusted Revenues
- Adjusted revenues increased steadily across the period, starting at 19249 million USD in 2020 and rising to 25908 million USD by 2024. The growth was somewhat moderate between 2021 and 2022, with revenues stabilizing around 23200 million USD in those years, followed by resumed growth in 2023 and 2024.
- Economic Profit Margin
- The economic profit margin followed a trend that mirrors economic profit, with a notable jump from 8.5% in 2020 to 15.85% in 2021. This was followed by a decline to 10.32% in 2022, before increasing again close to the previous high levels in 2023 and 2024, at 15.83% and 15.29% respectively. This pattern suggests fluctuations in profitability efficiency, with a clear rebound after the dip in 2022.
Overall, the data indicates strong underlying growth in revenues accompanied by fluctuations in profitability as reflected in economic profit and its margin. The recovery in economic profit and margin after 2022 suggests effective measures were taken to improve operational efficiency or cost management, stabilizing profitability despite relatively stable revenue levels in the prior year.