Last update on 2024-06-04

McDonalds (MCD) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Comprehensive Piotroski F-Score Analysis of McDonalds (MCD) for 2023 with final score of 8/9, focusing on profitability, liquidity, and operational efficiency.

Short Analysis - Piotroski Score: 8

We're running McDonalds (MCD) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is used to determine the financial strength of a company using 9 criteria related to profitability, liquidity, and operating efficiency. McDonald's has achieved a high Piotroski Score of 8 out of 9. Out of the nine criteria, McDonald's scored positive on eight of them: positive net income, positive cash flow, growing Return on Assets (ROA), operating cash flow higher than net income, declining leverage, share buybacks, growing gross margin, and increasing asset turnover ratio. It did not score on the current ratio criterion, indicating a slight decline in liquidity.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski Score of 8, McDonald's appears to be in a strong financial position with positive profitability, good liquidity measures, and efficient operations. For an investor, this high score, combined with consistent financial health indicators, suggests that McDonald's may be a solid and stable investment opportunity worth further consideration. However, potential investors should conduct additional research considering other factors as well before making an investment decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of McDonalds (MCD)

Company has a positive net income?

This criterion evaluates whether the company has positive Net Income, indicating profitability and financial health.

McDonald's recorded a Net Income of $8,468,800,000 in 2023, marking a positive figure. Over the past 20 years, this number has generally trended upward from $1,471,400,000 in 2003 to the most recent figure. This signifies continual profitability. Hence, McDonald's scores 1 point on this criterion, highlighting strong financial health and profitability trends.

Company has a positive cash flow?

Cash Flow from Operations (CFO) determines whether a company is generating positive cash flow from its core business activities. It is vital for assessing a company's financial health.

With CFO at $9,611,900,000 in 2023, McDonald's reports a positive cash flow, adding 1 point. Analyzing data over the last 20 years, McDonald's CFO has generally been on an upward trend, apart from a few fluctuations, indicating robust operational efficiency. For example, in 2003, it was $3.268 billion, and it has substantially increased to $9.611 billion by 2023, despite some dips in between—like $5.551 billion in 2017. This consistent increase is favorable, demonstrating resilience and effectiveness in its core business model.

Return on Assets (ROA) are growing?

The Change in Return on Assets (ROA) assesses how well a company utilizes its assets to generate earnings. An increasing ROA signifies improving efficiency in generating profit from assets.

McDonald's ROA increased from 0.1185 in 2022 to 0.1589 in 2023. This positive trend indicates a 34.14% improvement, which is significant given the company's large asset base. Over the past 20 years, McDonald's has generally trended slightly below the industry median, but this recent improvement shows better operational efficiency, greater profit generation from its assets, and gives McDonald's a point in this criterion.

Operating Cashflow are higher than Netincome?

The Piotroski F-Score adds 1 point if the operating cash flow is higher than the net income for the year, indicating quality of earnings.

For the year 2023, McDonald's operating cash flow (OCF) was $9,611.90 million compared to a net income (NI) of $8,468.80 million. The fact that OCF is higher than NI suggests that McDonald's earnings are backed by strong cash flows, granting it 1 point per the Piotroski F-Score criterion. Historically, examining McDonald's data over the past 20 years, a trend emerges where OCF has frequently been higher than NI. Notably, in 19 out of these 20 years (except 2007, 2010), McDonald's OCF exceeded its NI. This consistency underscores McDonald's robust earnings quality, affirming its capacity to generate cash independent of fluctuations in reported earnings. Consequently, this is a positive trend for the given criterion, contributing positively to the company's Piotroski F-Score.

Liquidity of McDonalds (MCD)

Leverage is declining?

Change in Leverage for McDonalds and why it's significant.

Let's delve into McDonald's leverage situation. Leverage measures the ratio of a company's total debt to its equity. For McDonald's, the leverage changed from 0.9525 in 2022 to 0.8943 in 2023. There is a slight decrease in leverage which adds 1 point to the Piotroski Score. This trend suggests McDonald's is slightly reducing its debt relative to its equity, a modestly positive signal. Over the past two decades, the leverage ratio exhibits fluctuation; notable peaks include 0.9866 in 2019 and lowest at 0.2487 in 2007. While recent levels are still high relative to earlier years, the slight reduction from 2022 to 2023 is an encouraging sign.

Current Ratio is growing?

The Current Ratio is a liquidity ratio that measures a company's ability to cover its short-term obligations with its short-term assets. It is important for assessing a company's financial health.

In 2023, McDonald's recorded a Current Ratio of 1.1644, compared to 1.4266 in 2022. This represents a decrease, signaling a slight decline in its ability to cover short-term liabilities with short-term assets. Over the last 20 years, the company has shown fluctuations but remained above the industry median, indicating relatively strong liquidity overall. Thus, no point is awarded for this criterion.

Number of shares not diluted?

This criterion evaluates whether a company has reduced the number of its shares outstanding over the year, indicating potential share buybacks and signaling shareholder value enhancement.

Given the data, McDonald's had 731,300,000 shares outstanding in 2022 and 727,900,000 shares in 2023. This signifies a decrease in outstanding shares. Specifically, the number decreased by 3,400,000 shares—indicative of a share buyback program or other shareholder-friendly activities. Historically since 2003, McDonald's has consistently reduced the number of its outstanding shares, peaking at approximately 1,276,500,000 in 2003 and gradually declining to its current figure. This persistent reduction demonstrates long-term commitment to returning value to shareholders. Thus, according to the Piotroski F-Score criterion, McDonald's earns one point for this category, which is positive for investors.

Operating of McDonalds (MCD)

Cross Margin is growing?

This criterion examines if the gross margin has improved year-over-year, indicating better operational efficiency and profitability.

McDonald's gross margin increased from 0.5697 in 2022 to 0.5712 in 2023. Although this increment might appear minor, it is a positive signal that suggests the company is gradually improving its profitability. Over the last 20 years, McDonald's gross margin has consistently outperformed the industry median, which stood at 0.3206 in 2023. The upward trend adds 1 point for this criterion.

Asset Turnover Ratio is growing?

Change in Asset Turnover measures how efficiently a company uses its assets to generate sales revenue. It is crucial because it demonstrates how well the company uses its asset base.

The Asset Turnover of McDonald's (MCD) increased from 0.4446 in 2022 to 0.4784 in 2023. This increase suggests an improvement in the company's efficiency in using its assets to generate revenue. Over the past 20 years, MCD's Asset Turnover Ratio has experienced fluctuations, peaking in 2007 at 0.7802 and declining to a low of 0.3836 in 2020. The recent uptick is a positive sign as it suggests the company is improving its operational efficiency, adding 1 point to the Piotroski Score.