McDonald’s Corp. (NYSE:MCD)

An analysis of the provided solvency ratios reveals generally stable, though subtly shifting, financial leverage positions over the five-year period. Several ratios indicate a moderate decrease in reliance on debt financing, while coverage ratios suggest a consistent ability to meet financial obligations, albeit with some fluctuation.

Debt to Capital

The Debt to Capital ratio demonstrates a decreasing trend, moving from 1.15 in 2021 to 1.04 in 2025. This suggests a gradual reduction in the proportion of financing derived from debt relative to equity and other capital sources. The inclusion of operating lease liabilities shows a similar, though less pronounced, decreasing trend, starting at 1.10 in 2021 and reaching 1.03 in 2025.

Debt to Assets

The Debt to Assets ratio exhibits a slight increase from 0.66 in 2021 to 0.74 in 2022, followed by relative stability between 0.73 and 0.71 from 2023 to 2025. This indicates a moderate level of assets financed by debt, with a minor initial increase followed by a period of consolidation. When operating lease liabilities are included, the ratio begins at 0.92 in 2021 and declines to 0.92 in 2025, showing a more substantial portion of assets financed by debt when these liabilities are considered, but with a consistent trend towards stabilization.

Coverage Ratios

Interest Coverage decreased from 8.70 in 2021 to 7.48 in 2022, then recovered to 8.73 in 2023, before settling around 7.87-7.89 in 2024 and 2025. This indicates fluctuating, but generally healthy, earnings available to cover interest expenses. Fixed Charge Coverage follows a similar pattern, declining from 4.32 in 2021 to 3.92 in 2022, increasing to 4.62 in 2023, and stabilizing around 4.35-4.39 in the final two years. This suggests a consistent, though variable, capacity to meet broader fixed financial obligations.

Overall, the observed trends suggest a cautious approach to debt management, with a slight reduction in leverage and consistent ability to cover financial obligations. The fluctuations in coverage ratios warrant continued monitoring, but do not currently indicate significant cause for concern.

An examination of the provided financial information reveals trends in the company’s debt and equity positions between 2021 and 2025. Total debt consistently increased over the period, while shareholders’ equity remained negative throughout, though with some fluctuation. Consequently, the debt-to-equity ratio exhibits a notable and increasing trend.

Total Debt

Total debt increased from US$35,623 million in 2021 to US$42,325 million in 2025. The increase was not strictly linear, with a slight decrease observed between 2022 and 2023, but the overall trajectory is upward. The largest single-year increase occurred between 2022 and 2023, adding US$3,696 million to the debt load.

Shareholders’ Equity

Shareholders’ equity remained in a deficit position throughout the analyzed period. The deficit lessened from US$6,003 million in 2022 to US$1,791 million in 2025, indicating some improvement in equity. However, the equity position was most negative in 2022, and while improving, remained substantially negative by 2025.

Debt-to-Equity Ratio

Given the negative shareholders’ equity, the debt-to-equity ratio is calculated as a negative number. The ratio moved from an unrecorded value in 2021 to -7.74 in 2022, -8.72 in 2023, -10.66 in 2024, and -23.60 in 2025. This indicates a substantial and accelerating increase in leverage relative to equity. The increasing negative value signifies that the company is relying more heavily on debt financing compared to its equity base, and the magnitude of this reliance is growing significantly over time.

The combination of increasing debt and a persistently negative, though improving, equity position suggests a growing reliance on debt financing. The substantial increase in the debt-to-equity ratio warrants further investigation into the company’s debt structure, interest obligations, and ability to service its debt.

An examination of the financial information reveals trends in the company’s solvency position over the five-year period. Specifically, the relationship between total debt, including operating lease liabilities, and shareholders’ equity demonstrates a consistently negative equity position and a fluctuating, but generally increasing, debt-to-equity ratio.

Total Debt

Total debt, inclusive of operating lease liabilities, exhibited a slight decrease from $49,349 million in 2021 to $48,699 million in 2022. This was followed by an increase to $53,091 million in 2023, a subsequent decrease to $51,948 million in 2024, and a further increase to $54,813 million in 2025. The overall trend suggests a relatively stable, but incrementally growing, debt level.

Shareholders’ Equity

Shareholders’ equity remained in a deficit position throughout the observed period. The deficit widened from $4,601 million in 2021 to $6,003 million in 2022, before marginally improving to $4,707 million in 2023 and $3,797 million in 2024. A more substantial improvement was noted in 2025, with the deficit decreasing to $1,791 million. Despite this improvement, the company continues to operate with negative equity.

Debt to Equity Ratio

Given the consistently negative shareholders’ equity, the debt-to-equity ratio is consistently negative. The ratio moved from not available in 2021 to not available in 2022, not available in 2023, not available in 2024, and not available in 2025. The negative sign indicates that debt exceeds equity in absolute terms. While the absolute value of the ratio fluctuates with changes in both debt and equity, the underlying condition of negative equity persists throughout the period. The improving equity position in 2024 and 2025 suggests a lessening of the negative relationship, but the company remains reliant on debt financing.

In summary, the company maintains a significant debt burden relative to its negative shareholders’ equity. While equity shows signs of improvement towards the end of the period, the solvency position remains vulnerable due to the continued reliance on debt and the absence of positive equity.

The Debt to Capital ratio exhibits a fluctuating pattern over the five-year period. Initially, the ratio increased before demonstrating a declining trend towards the end of the observed timeframe.

Overall Trend

The Debt to Capital ratio began at 1.15 in 2021 and rose to 1.19 in 2022. Following this increase, the ratio decreased to 1.13 in 2023, continued to 1.10 in 2024, and further declined to 1.04 in 2025. This indicates a decreasing reliance on debt financing relative to total capital over the latter portion of the period.

Year-over-Year Changes

From 2021 to 2022, the ratio increased by 0.04, suggesting a greater proportion of debt financing. However, each subsequent year showed a decrease. The largest year-over-year decrease occurred between 2024 and 2025, with a reduction of 0.06.

Debt and Capital Components

Total debt increased from US$35,623 million in 2021 to US$42,325 million in 2025, representing an overall increase of approximately 18.8%. Total capital also increased, from US$31,022 million to US$40,534 million, an increase of roughly 30.6%. The greater increase in total capital compared to total debt contributed to the observed decline in the Debt to Capital ratio.

The observed trend suggests a strengthening capital structure, as the company appears to be decreasing its dependence on debt relative to its overall capital base. The increase in total capital, exceeding the increase in total debt, is the primary driver of this change.

The Debt to Capital ratio, inclusive of operating lease liabilities, exhibits a generally decreasing trend over the five-year period. While fluctuations are present, the overall movement suggests a strengthening solvency position.

Total Debt (including operating lease liability)

Total debt demonstrated an initial decrease from $49,349 million in 2021 to $48,699 million in 2022. This was followed by an increase to $53,091 million in 2023, a slight decrease to $51,948 million in 2024, and a further increase to $54,813 million in 2025. The increases in 2023 and 2025 suggest potential investment in operations or financing activities, while the decreases in 2022 and 2024 may indicate debt reduction or a change in lease obligations.

Total Capital (including operating lease liability)

Total capital followed a similar pattern, decreasing from $44,748 million in 2021 to $42,696 million in 2022. An increase was then observed in 2023, reaching $48,384 million, followed by a slight decrease to $48,151 million in 2024, and a further increase to $53,022 million in 2025. The fluctuations in total capital likely correspond to changes in equity and debt financing.

Debt to Capital Ratio

The Debt to Capital ratio began at 1.10 in 2021, increased to 1.14 in 2022, and then returned to 1.10 in 2023. A continued decrease was observed in 2024, with the ratio falling to 1.08, and further decreasing to 1.03 in 2025. This downward trend indicates that the proportion of debt financing relative to total capital is diminishing, suggesting a reduced reliance on debt and potentially improved financial stability. The ratio remained above 1.0 throughout the period, indicating that debt financing exceeds equity financing.

The observed trends suggest a potential shift towards a more balanced capital structure, with a decreasing dependence on debt financing. However, the continued presence of a ratio above 1.0 warrants ongoing monitoring to ensure sustainable financial health.

The Debt-to-Assets ratio exhibits a generally stable pattern over the five-year period, with some fluctuation. An initial increase is followed by a period of relative consistency, concluding with a slight decrease.

Overall Trend

The ratio increased from 0.66 in 2021 to 0.74 in 2022, indicating a greater proportion of assets financed by debt. This was the largest single-year increase in the observed period. Following 2022, the ratio remained relatively stable, fluctuating between 0.73 and 0.74 for 2023 and 2024. A modest decrease to 0.71 is observed in 2025.

Year-over-Year Changes

The most significant year-over-year change occurred between 2021 and 2022, with an increase of 0.08. Subsequent annual changes were minimal, with differences of no more than 0.01 between consecutive years. The final year, 2025, shows a decrease of 0.02 compared to 2024.

Ratio Levels

Throughout the period, the ratio remained above 0.60, suggesting a substantial reliance on debt financing. The ratio peaked at 0.74 in 2022 and concluded at 0.71 in 2025. The consistency around 0.73 suggests a deliberate management of the debt structure relative to asset base.

Debt and Asset Movements

Total debt increased consistently from 2021 to 2025, with the exception of a slight decrease between 2022 and 2023. Total assets decreased in 2022 but then increased in subsequent years. The interplay between these increases and decreases influences the Debt-to-Assets ratio, explaining the observed fluctuations.

The Debt to Assets ratio, including operating lease liability, exhibits a relatively stable pattern over the five-year period. While fluctuations are present, the ratio remains consistently above 0.90, indicating a significant proportion of assets are financed by debt.

Overall Trend

The ratio initially increased from 0.92 in 2021 to 0.97 in 2022, suggesting a growing reliance on debt financing relative to assets. This was followed by a slight decrease to 0.95 in 2023 and 0.94 in 2024. The most recent year, 2025, shows a return to 0.92, mirroring the level observed in 2021.

Year-over-Year Changes

The largest year-over-year increase occurred between 2021 and 2022, with a rise of 0.05. Conversely, the most substantial decrease was observed between 2022 and 2023, declining by 0.02. The changes in subsequent years are comparatively smaller, indicating a stabilization in the ratio after the initial increase.

Debt and Asset Movements

Total debt, including operating lease liability, increased from US$49,349 million in 2021 to US$54,813 million in 2025. Total assets also experienced growth, moving from US$53,854 million in 2021 to US$59,515 million in 2025. The ratio’s fluctuations are a result of the interplay between these two values; while both increased overall, their differing rates of growth caused the observed changes in the Debt to Assets ratio.

The consistency of the ratio above 0.90 suggests a deliberate capital structure strategy. The slight variations observed may be attributable to specific financing or investment decisions made during each period.

An examination of the financial information reveals notable trends in the company’s capital structure over the five-year period. Total assets experienced fluctuations, initially decreasing from 2021 to 2022, then increasing in 2023, followed by a slight decrease in 2024, and concluding with a further increase in 2025. Shareholders’ equity consistently remained negative throughout the period, though the deficit lessened over time.

Financial Leverage

The financial leverage ratio is not populated within the provided information. Consequently, a direct assessment of the company’s reliance on debt financing is not possible. However, the consistently negative shareholders’ equity suggests a significant degree of financial leverage, as assets are largely financed by liabilities rather than owner investment. The reduction in the magnitude of the negative equity from US$6,003 million in 2022 to US$1,791 million in 2025 indicates a potential improvement in the company’s capital structure, possibly through earnings retention or other equity-increasing activities, even if equity remains negative.

The interplay between total assets and negative shareholders’ equity suggests the company operates with a substantial amount of debt or other liabilities relative to its equity base. The increasing asset base alongside a diminishing negative equity position could indicate improved asset utilization and/or successful debt management, but a complete evaluation requires the calculation and analysis of the financial leverage ratio itself, as well as other solvency metrics.

Without the financial leverage ratio, it is difficult to determine if the company’s debt levels are sustainable or represent a significant risk. The trend of decreasing negative equity is encouraging, but further investigation is needed to understand the composition of the company’s capital structure and its ability to meet long-term obligations.

The period under review demonstrates fluctuations in earnings before interest and tax (EBIT) alongside increasing interest expense, resulting in a dynamic interest coverage ratio. Overall, the interest coverage ratio exhibits a moderate degree of volatility across the five-year period.

Earnings Before Interest and Tax (EBIT)

EBIT decreased from US$10,314 million in 2021 to US$9,032 million in 2022, representing a decline of approximately 12.4%. A subsequent recovery is observed, with EBIT increasing to US$11,883 million in 2023. This upward trend continues, albeit at a slower pace, reaching US$11,851 million in 2024 and further increasing to US$12,479 million in 2025. The overall trend for EBIT is positive, with 2025 representing the highest value within the observed period.

Interest Expense

Interest expense consistently increased throughout the period. Starting at US$1,186 million in 2021, it rose to US$1,207 million in 2022, US$1,361 million in 2023, US$1,506 million in 2024, and finally reached US$1,582 million in 2025. This represents a cumulative increase of approximately 33.3% from 2021 to 2025.

Interest Coverage Ratio

The interest coverage ratio began at 8.70 in 2021, then decreased to 7.48 in 2022, coinciding with the decline in EBIT and the increase in interest expense. The ratio recovered to 8.73 in 2023, mirroring the increase in EBIT. A subsequent decrease is noted in 2024, with the ratio falling to 7.87. The ratio remains relatively stable in 2025 at 7.89. While fluctuations are present, the ratio consistently remains above 7.4, indicating a generally healthy ability to meet interest obligations. The slight decline in the latter years, despite increasing EBIT, suggests that interest expense is growing at a faster rate than earnings.

In summary, while the company demonstrates an ability to cover its interest obligations, the increasing trend in interest expense warrants continued monitoring. The relatively stable, but slightly declining, interest coverage ratio in the most recent years suggests a potential need to manage debt levels or improve operational efficiency to maintain a comfortable margin of safety.

The company’s ability to meet its fixed financial obligations, as indicated by fixed charge coverage, experienced fluctuations over the five-year period. Earnings before fixed charges and tax, and fixed charges themselves, both exhibited trends that influenced the overall coverage ratio.

Earnings Before Fixed Charges and Tax

Earnings before fixed charges and tax decreased from US$11,874 million in 2021 to US$10,509 million in 2022, representing a decline. Subsequently, these earnings increased to US$13,425 million in 2023 and remained relatively stable at US$13,433 million in 2024. A further increase to US$14,110 million was observed in 2025, indicating a positive trend in earnings generation.

Fixed Charges

Fixed charges demonstrated a slight decrease from US$2,746 million in 2021 to US$2,683 million in 2022. These charges then increased consistently over the subsequent years, reaching US$2,903 million in 2023, US$3,088 million in 2024, and US$3,213 million in 2025. This upward trend suggests a growing level of fixed financial commitments.

Fixed Charge Coverage Ratio

The fixed charge coverage ratio decreased from 4.32 in 2021 to 3.92 in 2022, coinciding with the decline in earnings before fixed charges and tax. The ratio improved to 4.62 in 2023, reflecting the increase in earnings. A slight decrease to 4.35 was noted in 2024, followed by a marginal increase to 4.39 in 2025. Overall, the ratio remained above 4.0 throughout the period, suggesting a generally comfortable ability to cover fixed charges, despite the fluctuations.

The interplay between earnings and fixed charges resulted in a period of decreased coverage in 2022, followed by improvement and relative stabilization. The increasing fixed charges in later years were offset by concurrent increases in earnings, maintaining a reasonably consistent coverage level.