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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:
- Statement of Comprehensive Income
- Common-Size Balance Sheet: Assets
- Analysis of Liquidity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to FCFF (EV/FCFF)
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Aggregate Accruals
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Economic Profit
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 reveals notable fluctuations in key performance indicators over the five-year period.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT initially increased from $6,162 million in 2020 to a peak of $8,491 million in 2021, reflecting a substantial improvement in operational profitability. However, this was followed by a decline to $7,131 million in 2022. Subsequently, there was a robust recovery in 2023, reaching $9,274 million, which represents the highest value in the period, before a slight decrease to $9,207 million in 2024. Overall, the trend indicates strong operational performance with some year-to-year variability.
- Cost of Capital
- The cost of capital exhibited a gradual upward trend, increasing from 9.61% in 2020 to 10.51% in 2024. This incremental rise suggests a modest elevation in the company's required return, possibly due to changes in market conditions, risk factors, or capital structure over time.
- Invested Capital
- Invested capital showed moderate fluctuations during the period. It increased slightly from $46,817 million in 2020 to $47,779 million in 2021, declined to $45,461 million in 2022, then surged to $50,097 million in 2023 before a slight reduction to $49,627 million in 2024. These movements indicate periodic adjustments in the capital base, with a noteworthy expansion in 2023.
- Economic Profit
- Economic profit followed a pattern similar to that of NOPAT, with significant increases and decreases over the years. It rose from $1,662 million in 2020 to $3,714 million in 2021, fell to $2,422 million in 2022, then rebounded strongly to $4,072 million in 2023, and slightly declined to $3,992 million in 2024. This reflects the company's ability to generate returns above its cost of capital, though with variable magnitude.
In summary, the data indicates that operational profitability and economic profit experienced considerable volatility but generally trended positively, especially in the most recent years. The cost of capital increased moderately, which slightly raised the threshold for value creation. Invested capital underwent fluctuations with a notable increase in 2023, signaling potential strategic investments or asset expansions during that period. The interplay of these factors suggests active management of resources and capital to sustain and enhance value generation.
Net Operating Profit after Taxes (NOPAT)
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
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
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
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.
The economic profit of the company shows a fluctuating but generally positive trend over the five-year period. Starting at US$ 1,662 million in 2020, it almost doubled to US$ 3,714 million in 2021. This was followed by a decrease to US$ 2,422 million in 2022. However, the economic profit recovered significantly in 2023 to US$ 4,072 million and slightly decreased to US$ 3,992 million in 2024. Overall, the company demonstrated strong profitability with notable volatility during this timeframe.
Invested capital exhibited moderate changes through the years. It started at US$ 46,817 million in 2020, experienced a slight increase to US$ 47,779 million in 2021, and then declined to US$ 45,461 million in 2022. The invested capital rebounded to its highest point within the observed period at US$ 50,097 million in 2023 before slightly decreasing again to US$ 49,627 million in 2024. The general pattern indicates strategic adjustments in capital allocation, with a peak in 2023.
The economic spread ratio, which reflects the return above the cost of capital, corresponds closely with the trend in economic profit. It rose from 3.55% in 2020 to 7.77% in 2021, then dropped to 5.33% in 2022. The ratio increased again to 8.13% in 2023 and marginally declined to 8.04% in 2024. These changes imply effective use of invested capital to generate returns exceeding costs in the later years, particularly in 2023 and 2024.
- Summary of trends:
- - Economic profit shows significant variability but maintains an overall positive level, with peaks in 2021 and 2023.
- - Invested capital fluctuates moderately, showing a tendency to increase over time with a peak in 2023.
- - Economic spread ratio mirrors profit trends, indicating improved returns over cost of capital during 2021 and more notably in 2023 and 2024.
- - The data suggests periods of investment adjustment and profitability management, culminating in strong economic performance in the final two years.
Economic Profit Margin
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.
- Economic Profit
- The economic profit demonstrated a generally positive trend over the five-year period, with fluctuations in the middle years. Starting at 1,662 million US dollars in 2020, it rose sharply to 3,714 million in 2021, then declined to 2,422 million in 2022. Subsequently, it increased again to 4,072 million in 2023 and slightly decreased to 3,992 million in 2024. The overall pattern suggests strong profitability growth with some volatility during the intervening years.
- Adjusted Revenues
- Adjusted revenues exhibited consistent growth throughout the period. Beginning at 19,249 million US dollars in 2020, revenues increased every year, reaching 25,908 million in 2024. This steady increase points to sustained expansion in sales or service generation over the five years.
- Economic Profit Margin
- The economic profit margin showed significant variation but remained robust, reflecting the company's efficiency in generating economic profit relative to revenues. It started at 8.63% in 2020, surged to nearly 16% in 2021, then dropped to about 10.44% in 2022. The margin recovered strongly to levels close to 16% in 2023 before slightly declining to 15.41% in 2024. This variability suggests shifts in cost management or pricing power that influenced profitability margins year over year.
- Overall Insights
- The data reveals a business experiencing steady revenue growth coupled with generally strong economic profitability. Despite some fluctuations in economic profit and margin during the middle years, the company maintained an economic profit margin above 8%, mostly around 15%, indicating a relatively high level of value creation. The decline in economic profit and margin in 2022 may warrant further exploration, but the subsequent rebound shows resilience in financial performance. The combination of rising revenues and strong profit margins suggests solid operational effectiveness and potentially favorable market conditions during the period analyzed.