How to read financial statements in an hour, on McDonald's

Every listed company files the same three documents once a year, and together they answer the three questions you have about any business: did it make money, what does it own and owe, and where did the cash go. Most guides explain them in the abstract. I would rather do it on one company in one hour, and the company is McDonald's, because you know what it sells and its accounts hold a surprise on every page.

Everything below is from McDonald's Form 10-K for the year to 31 December 2025, filed with the SEC on 24 February 2026. Twenty minutes per statement. Set a timer if you like.

Minute 0 to 20: the income statement

The income statement is a year of the business in one column: what came in, what it cost, what was left. McDonald's, 2025, rounded to the nearest hundred million:

Source: McDonald's Corporation, Form 10-K for 2025, consolidated statement of income (accession 0000063908-26-000035). Sub-lines from the same statement and the filing's XBRL tags.

Here is the surprise. Of the 45,356 McDonald's restaurants at the end of 2025, about 95% are franchised, and the two kinds of restaurant earn completely different money. The 5% McDonald's runs itself sold $9.7 billion of food and spent $8.3 billion doing it: 15 cents of profit on the dollar. The franchised 95% paid McDonald's $16.5 billion in rent and royalties against $2.6 billion of costs, mostly the buildings: 84 cents on the dollar. McDonald's is a landlord with a burger business attached, and the income statement says so in two lines, if you read them as a pair.

The three checks I do on any income statement, in this order:

1. Revenue against last year. $26.9 billion against $25.9 billion, up 4%. Slow, and honest: a company with 45,000 restaurants cannot grow like a start-up, and the 10-K does not pretend otherwise.
2. Operating margin. Operating income over revenue: 12.4 over 26.9, 46%. The middle one of the 776 companies with a filed year in our table makes 13% (read 22 September 2026); a 46% margin is what the landlord structure buys. If this number moves by more than a couple of points in a year, find out why before anything else.
3. Net income against operating income. 8.6 against 12.4. The gap is interest and tax. Interest is $1.6 billion a year, which is the price of the debt on the next statement, and it has grown three years running: $1.4, $1.5, $1.6 billion.

Minute 20 to 40: the balance sheet

The balance sheet is a photograph on the last day of the year: everything the company has, everything it owes, and what is left. Here is the one place where McDonald's confuses everyone who reads it for the first time.

Source: the same 10-K, consolidated balance sheet at 31 December 2025; lease lines from the balance sheet, goodwill and receivables from the XBRL tags. Total liabilities is total assets less equity.

McDonald's owns $59.5 billion of things and owes $61.3 billion. On paper the owners have less than nothing: minus $1.8 billion. A beginner reads that and thinks the company is insolvent. It is not, and the reason is two lines further down in the equity section: retained earnings of $70.3 billion and treasury stock of minus $79.3 billion.

Retained earnings are all the profit McDonald's ever kept after dividends. Treasury stock is all the money it ever spent buying its own shares back. It has kept $70 billion and spent $79 billion buying back stock, much of it with borrowed money, and the arithmetic of that is a negative equity line. The owners were not wiped out; they were paid out, in cash, over decades, and the share count fell from 732 million to 716 million in the last two years alone.

This is the same pattern as Home Depot, smaller in its case, and if you want the balance sheet on its own at more length, that post walks it line by line. The short version of what to check:

1. Cash against debt due within a year. $0.8 billion of cash against $1.5 billion coming due within a year ($0.8 billion of commercial paper and $0.7 billion of maturities), which the 10-K parks under long-term debt because a credit line to 2028 stands behind it. Fine, but only because of that line and the cash flow statement, coming next.
2. Debt against operating income. $40 billion of long-term debt against $12.4 billion of operating income, a bit over three years' worth. Interest of $1.6 billion is covered nearly eight times. This is a lot of debt carried comfortably, which is a different thing from a little debt.
3. The land. $28.2 billion of property, net of $21 billion of depreciation, on a gross cost of $49.3 billion. McDonald's owns about 56% of the land and 80% of the buildings under its restaurants in its consolidated markets (the 10-K says so). On the books they are carried at what they cost, minus wear: a plot bought in 1975 is on this page at its 1975 price. That is the one line here where the accounting rule runs in the owner's favour.

Minute 40 to 60: the cash flow statement

The income statement is an opinion; the cash flow statement is a bank account. It has three parts: cash from running the business, cash spent on the business, cash to and from the people who fund it.

Source: the same 10-K, consolidated statement of cash flows for 2025. Free cash flow is my subtraction.

Read the top against the income statement: net income was $8.6 billion and cash from operations was $10.6 billion. The difference is mostly depreciation, $2.2 billion of wear on buildings that was charged as a cost but paid for years ago. Cash higher than profit is what a mature company with old assets looks like; profit higher than cash, for more than a year, is the thing to worry about.

Then read the bottom. Free cash flow $7.2 billion. Dividends plus buybacks $7.2 billion. McDonald's paid its owners what the business threw off, to within a rounding error, and rolled its debt (raised $4.7 billion, repaid $4.8 billion) rather than paying it down. That is the whole capital policy in four lines: everything the restaurants earn after upkeep goes to shareholders, and on this year's numbers the $40 billion of debt is a fixture.

Whether you like that policy is your call. What the statement gives you is the fact of it, and a way to check next year whether it changed.

The three in one sentence

Write one. Mine, for McDonald's, dated 22 September 2026: "A landlord to 43,000 franchised restaurants, earning 46 cents of operating profit on the dollar, carrying $40 billion of debt it rolls rather than repays, paying its owners every cent of the $7 billion the business throws off, with negative equity that is a buyback ledger and not a warning." Next February you read the new filing and check which words changed.

That is the hour. The routine, once you have done it:

1. Income statement: revenue growth, operating margin, the gap between operating and net income. Three numbers, three minutes.
2. Balance sheet: cash against debt due, debt against operating income, and the retained-earnings and treasury lines before you judge equity.
3. Cash flow: cash from operations against net income, then free cash flow against what was paid out.
4. One sentence, dated.

Every company page in our app lays out the three statements, year by year, with the lines that matter drawn, and the free report on one company you own sends you that read as a PDF. The sentence is still yours to write.

Educational and proprietary. This explains what our research does, not the exact formula behind it, and it is not personalised investment advice. See the full disclaimer.