Bufetico
Some McDonald’s franchisees were still paying off the loans from their last remodel when the company showed them the design for the next one.
That last remodel, just before the pandemic, is the one that put kiosks inside the restaurants. It’s also part of why the restaurant owners formed their own association, the first independent one in McDonald’s history.
In January McDonald’s began grading its restaurant owners on whether their prices give customers a good value, and owners who keep falling short could face penalties or even lose their franchise, CNBC reported. That same month the owners’ group, the National Owners Association, sent its members fifteen standards it calls a franchisee bill of rights. One says owners should get a say before they’re made to pay for big remodels or new technology that may not show a clear return.
Later the group surveyed owners, and more than a hundred answered. Almost all of them said their restaurants made less money in the first quarter than a year before. Nearly eight in ten said their cash flow isn’t enough to cover the reinvestment they’re required to make, and they put the next remodel at $400,000 to $700,000 a restaurant. In a letter, the association asked why a whole-restaurant overhaul has to come so soon after the last one.
During McDonald’s earnings call on August 4, an analyst asked Chris Kempczinski, the CEO, how hard it would be to get the owners to invest with their cash flow under pressure. Kempczinski said the franchise agreements already call for a remodel every ten years, and that the owners’ finances are still in good shape. “They’ve got a lot of borrowing capacity still,” he said.
What McDonald’s owes
McDonald’s knows a thing or two about borrowing. At the end of 2025 it owed $39,973 million, and its equity, what the balance sheet says would be left for shareholders once every debt was paid, was minus $1,791 million. It’s had negative equity every year since 2016. The usual way to judge debt compares it with that equity, and once the equity goes below zero the ratio stops meaning anything, without a word of warning. The company’s annual report still prints a version of it, and at least in that one you can see something’s off: total debt came to 105 percent of debt plus equity, a part bigger than its whole. I hit the same wall with Etsy.
It got there mostly on purpose. In 2015 McDonald’s announced it would be selling thousands of its own restaurants to franchisees and handing much more cash back to its shareholders, most of the extra paid for with borrowed money. Cash paid out in dividends, or spent buying the company’s own shares, is gone for good. Add up everything ever put into McDonald’s, every profit it earned included, then take away everything it paid back out and what currency swings took off the dollar value of its business abroad, and by 2016 the total was below zero.
Today almost all McDonald’s restaurants are run by franchisees, and what McDonald’s gets from them is rent and royalties, figured on each restaurant’s sales. In 2025 rent, royalties and fees from franchised restaurants came to $16,548 million of the $26,885 million McDonald’s took in, and the annual report lists the franchise deals first among its sources of cash.
That rent is also where the restaurant owners get squeezed. McDonald’s cut comes off the top of their sales, and in some restaurants the rent alone can run 18 percent of sales or more, Restaurant Business has reported. The food, the paper and the wages come out of what’s left. Nearly every owner in the survey said food and paper costs have gone up since late last year, and three in four said McDonald’s had pressured them to lower prices.
Much of the remodel bill is theirs too, and that was part of the plan. McDonald’s 2015 annual report said franchising needs less capital because franchisees pay the cost of going into business and most of the reinvestment after that.
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So can McDonald’s carry its debt on the rent and royalties? The equity can’t answer that.
Does the profit cover the interest, and by how much? In 2025 McDonald’s interest bill was $1,582 million, and its operating income, the profit before interest and taxes, was $12,393 million, a little under eight times as much. The cash has to cover what goes to the restaurants and the shareholders. The business brought in $10,551 million from its operations and spent $10,536 million, almost to the dollar: $3,365 million on restaurants, $5,115 million on dividends and $2,056 million on buybacks. It finished the year with $774 million of cash against $39,973 million of debt.
And what falls due, and when? The annual report’s schedule puts $3,201 million of debt due in 2027 and $5,166 million in 2028, and McDonald’s counts its ability to borrow among the ways it expects to cover what it needs. Its own board has given it permission to borrow more, which the report calls borrowing capacity, the same words the CEO used about the restaurant owners, and $10.3 billion of that permission was still unused at the end of 2025. Lenders have promised it a $4.0 billion credit line, also unused, and that promise expires in June 2028. Restaurant Business reported that the owners’ next remodel cycle is expected to begin in those same two years, 2027 and 2028.
Where this breaks
More than a hundred owners answered the survey, out of more than two thousand franchisees, and McDonald’s says the results come from a small subset and miss how the company and its franchisees work together. The survey is also about profit. McDonald’s publishes its franchisees’ sales, which it calls a sign of their financial health, and leaves their profits out, so there’s no company figure to check the survey against.
Coverage of nearly eight times is last year’s number, and profit can fall. McDonald’s has been able to borrow again every year I’ve looked at, which tells you little about a year when lenders say no. I’m also using the company’s totals, where a lender would go country by country and franchise by franchise.
The franchisees still paying for the last remodel
Kempczinski says the owners still have a lot of borrowing capacity, and McDonald’s has plenty of its own. What that capacity costs shows up on the interest line, right under operating income. From 2021 to 2025 McDonald’s debt went from $35,623 million to $39,973 million, up 12 percent, while its interest bill went from $1,186 million to $1,582 million, up 33 percent. Operating income grew 20 percent over those years, from $10,356 million to $12,393 million, and coverage still slipped from about 8.7 times the interest bill to 7.8.
The annual reports for 2022 through 2025 all give higher average interest rates as a reason the interest bill went up, and by 2025 the average rate on all that debt was 4.0 percent. Those owners took out the loans they’re still paying off when the average rate on McDonald’s own debt was 3.2 percent.