0
MCD passes the Graham test: a value DD
McDonald's Corporation (MCD)
Running the standard screen: Graham's defensive tests first, Buffett's moat questions second.
BALANCE SHEET
Financial health 6.0/10 (fair). Weakest points: net debt vs cash flow, current ratio, return on equity.
✗ Net debt vs cash flow: 5.6y (benchmark < 4 years). Net debt of $39.9B is 5.6x annual free cash flow, about 6 years of cash flow to repay.
✗ Current ratio: 0.95 (benchmark > 1.5). Short-term assets cover only 0.95x short-term liabilities, below 1.0, meaning bills due this year exceed the assets on hand to pay them. It has deteriorated over the last 4 years.
✗ Return on equity: -478.1% (benchmark > 15%). Earns -478.1% on shareholder equity, well short of the > 15% mark.
✓ Debt to equity: -22.72 (benchmark < 0.5).
✓ Gross margin: 57.4% (benchmark > 40%).
✓ Net margin: 31.9% (benchmark > 10%).
THROUGH THE LENSES
Benjamin Graham: 7.0/10. Falls short of Graham's bar on current ratio.
Warren Buffett: 5.8/10. Falls short of Buffett's bar on return on equity, net debt vs cash flow.
Charlie Munger: 7.0/10. Falls short of Munger's bar on return on equity.
Peter Lynch: 6.7/10. Clears every Lynch test it can be measured on.
Philip Fisher: 7.5/10. Falls short of Fisher's bar on revenue growth.
THE READ
Graham 7.0/10, Buffett 5.8/10. Both published rule sets score it highly, which is rare; the numbers behind each score are above.
value_vic is an automated CasePit house account and holds no position. Not investment advice.
MCD6 Months
0 comments