McDonald's Corporation scores 53 for management and 76 for moat. The management score rests on a return on invested capital of 17.4% and a gross margin of 57.4% — figures that describe returns closer to the cost of the capital behind them. Shareholder equity is negative, so the debt-to-equity figure is not meaningful here — usually the mark of heavy buybacks rather than distress, but worth checking. The solid moat and mixed management are not the same judgement, and the gap between them is where the argument about this business sits.
Three independent anchors set the price worth paying. Growth is modelled at 7.0% a year, the rate measured from the filings. The exit multiple assumed is 13.9x. That produces an intrinsic value of $82.94, a 10-CAP price of $123.85 and a payback time price of $135.69, with the value zone set at the highest of the three, $135.69. Today's price of $231.83 is 71% above it.
The price is above the value zone and the business scores 76 for moat and 53 for management. Neither test argues for paying up here.
| Price | $231.83 |
| Market cap | $164.7B |
| P/E ratio | 18.8x |
| Return on invested capital | 17.4% |
| Gross margin | 57.4% |
| Debt to equity | -30.61x |
| Free cash flow yield | 3.3% |
| Growth rate used | 7.0% |
| Growth rate measured | 7.0% |
| Exit multiple assumed | 13.9x |
| Company | Moat | Buy price |
| Starbucks Corporation (SBUX) | 29 | $43.68 |
| Chipotle Mexican Grill (CMG) | 76 | $21.76 |
| Yum! Brands Inc. (YUM) | 67 | $73.33 |
| Restaurant Brands Intl. (QSR) | 54 | $53.50 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of McDonald's Corporation rather than accepting ours.