# How McDonald's makes money

CXProWealth Business Lens · McDonald's (MCD) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-07 with the SEC (accession 0000063908-26-000073): https://www.sec.gov/Archives/edgar/data/63908/000006390826000073/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $7.1B (+3.7% on the year)
- Operating income: $3.3B (operating margin 47.0%)
- Net income: $2.4B (net margin 33.3%)
- Gross margin: 90.4%
- Free cash flow: $2.0B (27.8% of revenue)
- Cash conversion (operating cash flow / net income): 1.19x
- Capital expenditure: 11.7% of revenue

## Where the money goes (Q2 FY2026)

- International Operated Markets → Total revenues: $3.6B
- International Developmental Licensed Markets and Corporate → Total revenues: $669.0M
- U.S. Market → Total revenues: $2.8B
- Total revenues → Total operating costs and expenses: $3.8B
- Total operating costs and expenses → Company-operated restaurant expenses: $2.1B
- Total operating costs and expenses → Franchised restaurants-occupancy expenses: $680.0M
- Total operating costs and expenses → Other Restaurant Expenses: $163.0M
- Total operating costs and expenses → Depreciation and Amortization: $111.0M
- Total operating costs and expenses → Other Selling, General and Administrative Expense: $706.0M
- Other operating (income) expense, net → Total operating costs and expenses: $37.0M
- Total revenues → Operating income: $3.3B
- Operating income → Interest expense: $409.0M
- Operating income → Nonoperating (income) expense, net: $6.0M
- Operating income → Income before provision for income taxes: $2.9B
- Income before provision for income taxes → Provision for income taxes: $574.0M
- Income before provision for income taxes → Net income: $2.4B

## Where the revenue comes from

### Segments (Segment Information (Revenues and Operating Income by Segment) (Details))

| Member | Value | Share |
|---|---:|---:|
| International Operated Markets | $3.6B | 50.8% |
| U.S. Market | $2.8B | 39.8% |
| International Developmental Licensed Markets and Corporate | $669.0M | 9.4% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q2 FY2026 | Of revenue |
|---|---:|---:|
| Revenues from franchised restaurants | $4.4B | 61.9% |
| Sales by Company-owned and operated restaurants | $2.5B | 35.6% |
| Other Revenues | $182.0M | 2.6% |
| **Total revenues** | $7.1B | 100% |
| Company-operated restaurant expenses | $2.1B | 30.1% |
| Franchised restaurants-occupancy expenses | $680.0M | 9.6% |
| Other Restaurant Expenses | $163.0M | 2.3% |
| Depreciation and Amortization | $111.0M | 1.6% |
| Other Selling, General and Administrative Expense | $706.0M | 9.9% |
| Other operating (income) expense, net | ($37.0M) | 0.5% |
| **Total operating costs and expenses** | $3.8B | 53.0% |
| **Operating income** | $3.3B | 47.0% |
| Interest expense | $409.0M | 5.8% |
| Nonoperating (income) expense, net | -$6.0M | 0.1% |
| **Income before provision for income taxes** | $2.9B | 41.4% |
| Provision for income taxes | $574.0M | 8.1% |
| **Net income** | $2.4B | 33.3% |
| Earnings per common share-basic | $3 | 0.0% |
| Earnings per common share-diluted | $3 | 0.0% |
| Dividends declared per common share | $2 | 0.0% |
| Weighted average shares outstanding-basic | 709.1 |  |
| Weighted average shares outstanding-diluted | 711.1 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2007 | $22.8B | $3.9B | $2.4B | $4.9B | $1.9B | $2.9B |
| FY2008 | $23.5B | $6.4B | $4.3B | $5.9B | $2.1B | $3.8B |
| FY2009 | $22.7B | $6.8B | $4.6B | $5.8B | $2.0B | $3.8B |
| FY2010 | $24.1B | $7.5B | $4.9B | $6.3B | $2.1B | $4.2B |
| FY2011 | $27.0B | $8.5B | $5.5B | $7.2B | $2.7B | $4.4B |
| FY2012 | $27.6B | $8.6B | $5.5B | $7.0B | $3.0B | $3.9B |
| FY2013 | $28.1B | $8.8B | $5.6B | $7.1B | $2.8B | $4.3B |
| FY2014 | $27.4B | $7.9B | $4.8B | $6.7B | $2.6B | $4.1B |
| FY2015 | $25.4B | $7.1B | $4.5B | $6.5B | $1.8B | $4.7B |
| FY2016 | $24.6B | $7.7B | $4.7B | $6.1B | $1.8B | $4.2B |
| FY2017 | $22.8B | $9.6B | $5.2B | $5.6B | $1.9B | $3.7B |
| FY2018 | $21.3B | $8.8B | $5.9B | $7.0B | $2.7B | $4.2B |
| FY2019 | $21.4B | $9.1B | $6.0B | $8.1B | $2.4B | $5.7B |
| FY2020 | $19.2B | $7.3B | $4.7B | $6.3B | $1.6B | $4.6B |
| FY2021 | $23.2B | $10.4B | $7.5B | $9.1B | $2.0B | $7.1B |
| FY2022 | $23.2B | $9.4B | $6.2B | $7.4B | $1.9B | $5.5B |
| FY2023 | $25.5B | $11.6B | $8.5B | $9.6B | $2.4B | $7.3B |
| FY2024 | $25.9B | $11.7B | $8.2B | $9.4B | $2.8B | $6.7B |
| FY2025 | $26.9B | $12.4B | $8.6B | $10.6B | $3.4B | $7.2B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +3.7% (year before +1.7%): accelerating
- Operating income: +5.8% (year before +0.6%): accelerating
- Net income: +4.1% (year before -2.9%): accelerating
- Free cash flow: +7.7% (year before -8.0%): accelerating

## Operating figures stated in the filing

- Restaurants: 46,028 restaurants (as of 2026-06-30). "Of the 46,028 McDonald's restaurants at June 30, 2026, approximately 95% were franchised." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Restaurants: 44,113 restaurants (as of 2025-06-30). "Total Systemwide restaurants 46,028 44,113" (Item 1. Financial Statements)
- Franchised restaurants: 44,016 restaurants (as of 2026-06-30). "Total Franchised 44,016 42,059" (Item 1. Financial Statements)
- Franchised restaurants: 42,059 restaurants (as of 2025-06-30). "Total Franchised 44,016 42,059" (Item 1. Financial Statements)
- Company-owned and operated restaurants: 2,012 restaurants (as of 2026-06-30). "Company-owned and operated 2,012 2,054" (Item 1. Financial Statements)
- Company-owned and operated restaurants: 2,054 restaurants (as of 2025-06-30). "Company-owned and operated 2,012 2,054" (Item 1. Financial Statements)
- Global comparable sales growth (quarter): 1.3% (as of 2026-06-30). "Global comparable sales increased 1.3% for the quarter and 2.5% for the six months." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Global comparable sales growth (quarter): 3.8% (as of 2025-06-30). "Total Company 1.3 % 3.8 % 2.5 % 1.4 %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- U.S. comparable sales growth (quarter): 0.8% (as of 2026-06-30). "U.S. comparable sales increased 0.8% for the quarter and 2.3% for the six months." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- U.S. comparable sales growth (quarter): 2.5% (as of 2025-06-30). "U.S. 0.8 % 2.5 % 2.3 % (0.5) %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- International Operated Markets comparable sales growth (quarter): 1.5% (as of 2026-06-30). "International Operated Markets comparable sales increased 1.5% for the quarter and 2.6% for the six months." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- International Developmental Licensed Markets comparable sales growth (quarter): 1.9% (as of 2026-06-30). "International Developmental Licensed Markets comparable sales increased 1.9% for the quarter and 2.6% for the six months." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Systemwide sales growth (quarter): 5.0% (as of 2026-06-30). "Systemwide sales increased 5% (4% in constant currencies) for the quarter and 8% (5% in constant currencies) for the six months." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Markets with loyalty programs: 70 markets (as of 2026-06-30). "Systemwide sales to loyalty members are measured across 70 markets with loyalty programs." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)

## Key insights

### Franchised revenue costs 15.5%, owned restaurants cost 84.7%

Occupancy took 15.5% of $4.4B franchised revenue, while running owned restaurants consumed 84.7% of their $2.5B sales, so profit follows franchising.

Revenues from franchised restaurants were $4,393 million, 61.9% of total revenues of $7,099 million. The main cost tied to them, franchised restaurants-occupancy expenses for the land and buildings the company owns or leases, was $680 million, or 15.5% of franchised revenues. Conventional franchisees pay rent and royalties based on a percent of sales, with specified minimum rent payments. _(from the filing)_
Company-operated sales were $2,525 million, 35.6% of revenue, from 2,012 restaurants. Their restaurant expenses, covering food, paper, payroll and occupancy, were $2,138 million, or 84.7% of those sales, against 84.5% a year earlier. The filing attributes the pressure on U.S. company-operated margins to ongoing inflationary costs. _(from the filing)_
Analysis: this contrast, more than restaurant-level efficiency, is what produces an operating margin close to half of revenue. A dollar of franchisee sales reaches McDonald's as rent and royalty, with the food and labor already paid for by the operator. The filing keeps the owned fleet for other reasons: training, testing products and pricing, and credibility as a franchisor. _(analysis)_

### The U.S. grows slowest but earns the widest margin

U.S. revenue rose 1.7%, the slowest of three segments, yet 55.6% of it became operating income, against 47.8% in International Operated Markets.

The U.S. Market produced $2,827 million of revenue, 39.8% of the total, and $1,573 million of operating income, 47.1% of the total. International Operated Markets produced $3,603 million of revenue, 50.8% of the total, and $1,723 million of operating income, 51.6%. U.S. revenue rose 1.7%, against 4.1% for International Operated Markets. _(from the filing)_
International Developmental Licensed Markets and Corporate grew fastest, up 11.5% to $669 million, 9.4% of revenue, but contributed $42 million of operating income, 1.3% of the total. Corporate overhead is reported in this segment, and the filing names higher selling, general and administrative expenses there as the offset to operating income growth. _(from the filing)_
Analysis: the filing says segment contributions to margin differ mainly because of the mix of franchised and company-operated restaurants, and International Operated Markets run more of their own restaurants, with the food and labor costs that come with them. The low profit in the licensed segment mostly reflects where corporate costs are booked, which the segment table cannot fully separate. The practical point: the segment growing slowest carries nearly half of operating income. _(analysis)_

### Overhead grew 18.7% while revenue grew 3.7%

Other selling, general and administrative expense rose to $706M from $595M, so operating income grew 3.3%, slower than revenue, and margin slipped 0.21 points.

Other selling, general and administrative expense rose 18.7% to $706 million, reaching 9.95% of revenue, up 1.25 points. The filing names higher employee costs, including incentive-based compensation, and the costs of the Worldwide Owner/Operator convention. _(from the filing)_
A swing in other operating items softened the effect: a net $37 million of other operating income, against a net $29 million expense a year earlier. The filing attributes it partly to more sales of restaurants to franchisees in the International Operated Markets and higher gains on sales of excess property. Operating income rose 3.3% to $3,338 million and operating margin eased to 47.0%. _(from the filing)_
Analysis: part of the increase looks periodic and part looks lasting. A convention does not happen every year; incentive pay and technology costs tend to stay. Gains on selling restaurants and property are not a steady income source either, so the quarter's operating income leaned on items that may not repeat at the same size. _(analysis)_
Management measures overhead against Systemwide sales, which include franchisee sales the company does not record as revenue, so its own ratio reads far smaller than the share of revenue shown here. _(from the filing)_

### Rising capital spending has held free cash flow flat

Over four years, annual capital spending rose from $2.0B to $3.4B, so free cash flow stayed near $7.1B to $7.2B while operating cash grew.

In the latest full year, cash from operations was $10,551 million and capital expenditures $3,365 million, leaving free cash flow of $7,186 million. Four years earlier the figures were $9.1 billion, $2.0 billion and $7.1 billion. Capital spending took 31.9% of operating cash, against 22.3%. Net income rose to $8,563 million from $7.5 billion over the same span, so free cash flow now covers a smaller share of reported profit. _(from the filing)_
The quarter fits the pattern. Capital expenditures were $831 million against $744 million a year earlier, 11.7% of revenue. Free cash flow recovered to $1,976 million from $1,254 million, 83.7% of net income, because cash from operations rose to $2,807 million from $1,998 million; the filing attributes the first-half increase to favorable working capital changes and improved operating results. _(from the filing)_
The filing says the majority of this year's capital spending is directed toward new restaurant units across the U.S. and International Operated Markets, where under conventional franchising the company generally owns or secures a long-term lease on the land and building. _(from the filing)_
Analysis: this complicates the asset-light label. In the markets it operates, McDonald's builds and holds the real estate, so unit growth there consumes cash before it earns rent. Whether the extra spending lifts free cash flow later depends on new restaurants ramping toward system averages. _(analysis)_

### Competitive edge

- **Fees track sales, so higher checks still pay** Rent and royalties are a percent of franchisee sales, so franchised revenues rose to $4.4B from $4.2B though U.S. guest counts fell.
- **Partners carry the capital for most new restaurants** Restaurants rose to 46,028 from 44,113 while company-operated units fell to 2,012 from 2,054, so franchisees and licensees carried all the net growth.
- **Contractual fees turn into steady shareholder cash** Free cash flow was 27.8% of revenue, and the dividend declared rose to $1.86 from $1.77 while diluted shares fell to 711.1 million.

### What to watch

- **U.S. growth rests on bigger checks, fewer guests** U.S. comparable sales rose 0.8% against 2.5% a year earlier, with higher checks offsetting negative guest counts, a pattern that leans on pricing power.
- **Franchisee profitability is the model's quiet constraint** Owned restaurants spent 84.7% of sales on running costs against 84.5% a year earlier, a squeeze the filing ties to inflation that franchisees also face.
- **A rising interest bill sits under the fee stream** Interest expense rose 4.9% to $409M, equal to 12.3% of operating income, and the filing attributes the rise mainly to higher average rates.

## Operating income by segment

- International Operated Markets: $1.7B (51.6% of operating income)
- U.S. Market: $1.6B (47.1% of operating income)
- International Developmental Licensed Markets and Corporate: $42.0M (1.3% of operating income)

## Investor view

**Rent and royalties from franchisees are 61.9% of McDonald's revenue and the bulk of its restaurant profit**

### How it makes money

McDonald's is mainly a landlord and licensor. Revenues from franchised restaurants were $4,393 million of $7,099 million in total revenues, or 61.9%. Conventional franchisees pay rent and royalties "based upon a percent of sales, with specified minimum rent payments", plus initial fees when a restaurant opens. The company describes the result as "stable and predictable revenue, which is largely a function of franchisee sales". _(from the filing)_
Under a conventional franchise, the company generally owns or holds a long-term lease on the land and building, and the franchisee pays for equipment, signs, seating and décor. The cost of carrying those sites, franchised restaurants-occupancy expenses, was $680 million, equal to 15.5% of franchised revenues. Franchise revenue arrives with little cost attached, because the franchisee runs the restaurant, hires the crew and buys the food. _(from the filing)_
Company-operated restaurants are the other revenue line: sales of $2,525 million, 35.6% of total revenues, from 2,012 restaurants. Here the company carries the food, paper, payroll and occupancy costs, and those expenses were $2,138 million, or 84.7% of the sales they produced. The filing says owning restaurants makes it "a credible franchisor": a place to train crews and to test standards, marketing, products and pricing. _(from the filing)_
In developmental license and affiliate markets, including China and Japan, the licensee supplies the capital, real estate included, and the company collects a royalty on sales without investing restaurant capital. That segment, reported together with Corporate, produced $669 million of revenue. Other revenues of $182 million are mainly fees franchisees pay toward the company's technology and digital platforms, plus brand licensing of packaged goods. _(from the filing)_
The ownership mix explains the margins. Operating income was $3,338 million, an operating margin of 47.0%, and net income was $2,362 million, a net margin of 33.3%. Of 46,028 restaurants, 44,016 were franchised, or 95.6%. _(from the filing)_

### What shifted

Growth came mostly from outside the U.S. International Developmental Licensed Markets and Corporate revenue rose 11.5% to $669 million and International Operated Markets revenue rose 4.1% to $3,603 million, while U.S. Market revenue rose 1.7% to $2,827 million. The U.S. share of revenue fell 0.8 points to 39.8%. The filing credits part of the international gain to stronger currencies, mainly the Euro and the Australian Dollar. _(from the filing)_
Comparable sales slowed. Global comparable sales rose 1.3%, against 3.8% in the same quarter a year earlier, and U.S. comparable sales rose 0.8%, against 2.5%. In the U.S. the company says growth came from higher average checks, including favorable product mix, "partly offset by negative comparable guest counts": established restaurants served fewer guests, each paying more. Systemwide sales still rose 5%, helped by 46,028 restaurants against 44,113 a year earlier. _(from the filing)_
Overhead grew faster than revenue. Other selling, general and administrative expense rose 18.7% to $706 million, from $595 million, and reached 9.95% of revenue, up 1.25 points. The filing names higher employee costs, including incentive-based compensation, and the costs of the Worldwide Owner/Operator convention. Operating income rose 3.3% to $3,338 million, slower than revenue at 3.7%, so operating margin slipped 0.21 points to 47.0%. _(from the filing)_
Net income grew faster than operating income, up 4.8% to $2,362 million. The provision for income taxes fell 5.6% to $574 million, 19.6% of pre-tax income against 21.3% a year earlier, which the filing attributes to discrete tax benefits related to restructuring. Diluted earnings per share rose to $3.32 from $3.14, also helped by a smaller share count: 711.1 million diluted shares against 717.6 million. _(from the filing)_
Cash recovered from a weak comparison. Cash from operations was $2,807 million against $1,998 million a year earlier, and free cash flow was $1,976 million against $1,254 million, after capital expenditures of $831 million against $744 million. For the first half, the filing attributes the increase to favorable working capital changes and improved operating results. Free cash flow equaled 83.7% of net income. _(from the filing)_

### Risks in the filing

The company names its own model as a risk. Revenues from franchised restaurants are "largely dependent on the ability of our franchisees to grow their sales", and its plans depend on franchisees being willing and able to invest in major initiatives, which in turn depends on their access to financing at reasonable rates. Franchisees operating below standard, or projecting an image at odds with the brand, could also harm results. _(from the filing)_
Legal challenges to the line between the company and its franchisees are named directly: litigation or regulation treating the company as responsible for franchisees for employment law or other purposes "could challenge our franchise business model", raise costs and create liability for their actions. Labor laws on wages, hours and benefits, and staffing shortages, are listed as pressures on both company-operated margins and franchisee profitability. _(from the filing)_
Consumer preferences can shift quickly, and the filing names the use of weight-loss medications and changing dietary guidelines among the forces that could alter behavior. It also warns that pricing, promotion and value plans may work less well than competitors' and cost sales, guest counts and market share, and that orders through third-party delivery services may be less profitable than other orders. _(from the filing)_
Costs and the wider world: beef and chicken prices are described as particularly volatile and only partly hedged; tariffs, sanctions, hostilities and anti-American sentiment can disrupt markets; currency moves affect reported earnings; and AI tools may fail to deliver the intended efficiencies while adding regulatory, security and data risks. A lower credit rating or higher funding costs would raise interest expense and reduce flexibility. _(from the filing)_
Two of these risks already show in the quarter. Negative U.S. guest counts are the consumer and value risk in motion, and the larger share of company-operated sales absorbed by restaurant costs is the commodity and labor risk. Currency, by contrast, helped. The franchise dependency risk has not appeared: franchised revenues grew in every segment. _(analysis)_

## Founder view: mechanisms

### Landlord and franchisor in one contract

McDonald's controls the site, usually by owning or leasing the land and building, and rents it to an operator who also pays a royalty on sales. The operator buys the equipment and runs the restaurant. The company earns two streams from one location, with a floor under the rent, and its main cost is the occupancy it already carries. The scarce asset is the corner, not the kitchen. _(analysis)_

### Royalties grow on partners' capital

In licensed markets the partner funds the restaurant, real estate included, and the company collects a royalty on sales. Expansion then costs the company little capital: the brand, the operating system and the menu do the work, and the partner carries the risk of each new unit. Growth in restaurant count shows up as fee revenue without matching growth in the company's own assets. _(analysis)_

### A small owned fleet as the test kitchen

McDonald's runs only a small share of its restaurants itself, and the filing says why: owned restaurants give it credibility as a franchisor, a training venue, and a place to test operating standards, marketing, products and pricing before they spread. The owned fleet is less a profit center than a source of first-hand knowledge about what franchisees face. _(analysis)_

### Predictable fee cash funds dividends and buybacks

Because most revenue is contractual rent and royalty, cash flow is steady enough for McDonald's to borrow against it and return cash to shareholders. The company states its order of priorities: invest in growth, protect the dividend, then repurchase shares with what remains. The predictability of the fees is what lets it carry a large debt load. _(analysis)_

## Member research

Signed-in members read, on the page: what McDonald's's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- McDonald's 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/63908/000006390826000073/ (2026-08-07)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-01 · as of 2026-11-01