Capital is the cash obtained through some form of financing. It is critical to a company's growth prospects and keeps everything flowing. That said, raising capital isn’t just for companies going through hard times. It is also required by successful companies looking to grow. Companies also use debt to buy back stock or pay dividends. The two primary ways that companies finance operations are with debt and equity.

Analysts are mixed on the use of debt to buy back company stock. Some believe using debt is smart when interest rates are low while others believe it leads companies to take on too much debt. While there’s nothing wrong with debt, too much of it can risk a company's earnings. This is why analysts look at trends in measures of market capitalization, debt capitalization, and enterprise value to assess the capital structure of a firm. Below is a look at the capital structure of McDonald's.

McDonald's Equity and Debt Capital

McDonald's (MCD) shares closed at $304.51 on Sep. 30, 2024. The number of 澳洲幸运5官方开奖结果体彩网:shares outstanding dropped 1.59% to 720 million at the end of the third quarter of 2024 from the same period in 2023.

The company's 澳洲幸运5官方开奖结果体彩网:market capitalization increased from $191.99 billion in September 2023 to $218.22 billion in September 2024. This is an ideal situatꦿion for investors, as it means that the market value of the company’s equity has gone up, but at what cost?

Total debt increased by more than 7% (from $49.75 billion to $53.41 billion) over the same period that market cap increased. Long-term debt increased by 4.6% to $38.99 billion by Sept. 30, 2024.

McDonald's bought back millions of shares in a stock buyback program in the year between Sept. 30, 2023, and Sept. 30, 2024, which reduced the total number of shares outstanding.

McDonald's Financial Leverage

Using a financial leverage ratio like the total 澳洲幸运5官方开奖结果体彩网:debt-to-capital ratio is an important way to analyze how much debt a company has in its capital structure. Investors can 🥃use this ratio to track debt relative to equity capital over time and in𓄧 comparison to other firms.

MCD's debt-to-capital ratio remained flat at 1.15 between the end of the third quarter of 2023 to the same period in 2024. This m🎐eans that the company continued to fund its operations with $1.15 worth of debt for every dollar of its capital.

McDonald's Enterprise Value (EV)

Enterprise value (EV), also known as a takeover price, is calculated by adding the company's market cap plus all debt minus any cash and cash equivalents. A company's market cap only looks at its share price and the number of outstanding shares. The EV, on the other hand, factors the company's debt capi♔tal.

McDonald's has an enterprise value of $269.42 billion as of Sept. 30, 2024, compared to its market cap of $218.22 billion. The formula to calculate EV is:

EV = Market Cap + Total Debt and Cash

The differenceꦑ between the two ($51.2 billion) 🐟is the company’s debt and cash.

The Bottom Line

Increases in McDonald's enterprise value are because of a rise in debt, which was used to pay for billions of dollars in share repurchases and billions more in dividends paid out to investors. It does not, however, mean that McDonald’s is over-capitalized or in trouble. It means that the price of money is still very low and companies such as McDonald's are using this cheap capital to 澳洲幸运5官方开奖结果体彩网:repurchase shares and pay dividends wh🃏🥀ile sitting on large amounts of cash.