How MCD (McDonald's) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a global fast-food leader like McDonald's (formerly McDonald's Corporation) makes money is essential for investors and anyone interested in the business of quick-service restaurants. In this post, we break down McDonald's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick McDonald's Overview

McDonald's operates one of the world's largest fast-food chains, serving burgers, fries, beverages, and breakfast items through a mix of company-operated and franchised restaurants. Revenue comes primarily from sales at company-operated restaurants and fees from franchised locations, including rent, royalties, and initial franchise fees. The company segments its business into U.S., International Operated Markets, and International Developmental Licensed Markets.

Revenue Breakdown

• Total Revenue (Q3 2025): $6.41B (+14% YoY)
  • Franchised Restaurants: $5.02B (78% of total)
  • Company-Operated Restaurants: $1.39B (22% of total)
  • Growth is powered by menu innovation, digital sales, and global expansion.

Gross Profit and Margins

• Gross Profit: $3.98B (62.1% gross margin)
  • Cost of Revenue: $2.43B (+11% YoY)
  • McDonald's maintains robust margins due to its highly franchised business model, which leverages operational efficiencies and recurring franchise fees.
• Most costs come from food and paper, payroll, occupancy, and other restaurant operating expenses.

Operating Income and Expenses

• Operating Income: $2.87B (+16% YoY, 44.8% margin)
• Operating Expenses: $1.11B (+9% YoY)
  • R&D: $0.18B (+12% YoY, 2.8% of revenue) — Focused on menu development, digital platforms, and sustainability initiatives.
  • SG&A: $0.93B (+8% YoY, 14.5% of revenue) — Includes corporate overhead, marketing, and administrative costs.
  • McDonald's continues to prioritize innovation and invest in digital transformation while maintaining cost discipline.

Net Income

• Pre-Tax Income: $2.81B (+15% YoY, 43.8% margin)
• Income Tax: $0.53B (18.9% effective tax rate)
• Net Income: $2.28B (+17% YoY, 35.6% net margin)
• McDonald's converts a significant portion of sales into profit due to its scalable franchise model and pricing power.

What Drives McDonald's Money Machine?

• Franchised Restaurant Revenue: 78%+ of revenue comes from franchise fees, rent, and royalties, providing stable, high-margin income.
• Digital Sales Growth: Digital channels now account for over 40% of systemwide sales, driven by mobile ordering and delivery partnerships.
• Strategic Investments: Heavy investment in digital infrastructure, loyalty programs, and menu innovation.
• Future Growth Areas: Expansion into new international markets and plant-based menu items, though these segments are not yet profitable.

Visualizing McDonald's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially SG&A) taking the largest chunk.
• Even after significant investments in digital and menu innovation, 35.6% of revenue drops to the bottom line.

Key Takeaways

• McDonald's money comes overwhelmingly from franchised restaurant fees and royalties
• High gross and net margins illustrate the power of McDonald's asset-light franchise model
• Heavy investment in digital transformation and menu innovation, balanced by efficiency in operating costs
• Ongoing growth is driven by digital sales, international expansion, and menu innovation

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FAQ About McDonald's Income Statement

1. What is the main source of McDonald's revenue in 2025?

McDonald's generates over 78% of its revenue from franchised restaurant fees, rent, and royalties. Company-operated restaurant sales contribute the remainder.

2. How profitable is McDonald's in Q3 2025?

McDonald's reported net income of $2.28B in Q3 2025, with a net margin of approximately 35.6%, reflecting strong profitability driven by its franchise model and operational efficiency.

3. What are the largest expense categories for McDonald's?

The biggest expenses on McDonald's income statement are operating expenses, particularly Sales, General & Administrative (SG&A) and Research & Development (R&D) costs. R&D investment reached $0.18B in Q3 2025, as McDonald's prioritizes menu innovation and digital platforms.

4. Why does International Developmental Licensed Markets operate at a loss?

International Developmental Licensed Markets, despite generating $0.42B in revenue, posted an operating loss of over $0.09B in Q3 2025. This is because McDonald's aggressively invests in market expansion and infrastructure, believing these will drive long-term growth—even if the division is unprofitable today.

5. How does McDonald's effective tax rate compare to previous years?

McDonald's effective tax rate in Q3 2025 was 18.9%, consistent with previous years. This moderate rate is primarily due to international structuring and tax benefits from share-based compensation.

Note: All financial data is extracted directly from McDonald's Q3 2025 SEC filings and official reports. The Sankey chart visualizes these flows for clarity and investor insight.