The Real Way McDonald’s Makes Their Money

We all know McDonald's as one of the biggest fast-food joints, with some of the famous menu burgers like the bigMac, McDonald's sells about 70 million burgers daily, but burgers aren't the real gold for McDonald's.
It’s because of the unique makeup of McDonald’s (and the fact that the business is struggling on a whole) that investors are pressuring the company to spin off its land and buildings into a separate entity. McDonald's revenues in 2014 were down from year-ago levels and 2015 looks to be even more depressed than 2014 but if you considered just the real-estate portion of the business, McDonald’s suddenly becomes way more exciting. Take into account a company with $40 billion in real estate assets (before depreciation) and annual revenues of $9 billion, nearly $4 billion of which is profit. The McDonald's real estate investment trust is what it's called (REIT). Isn't that good? To put those figures into context, this fictitious REIT would account for more than 40% of McDonald's current market capitalization while generating 80% of its profits. McDonald's is a great example of how diversification can help a business not only increase its income but also reduce its financial risks. McDonald's is both a fast food restaurant and a real estate company. Like a fast-food corporation, it not only operates its restaurants but also franchises the brand. They can achieve much larger economies of scale by franchising the brand because other companies or entrepreneurs finance the brand's expansion into many other places all over the world. They can also earn more money with higher margins because the income they earn from their franchisees' percentage of sales does not require them to spend money on operating those franchised branches. Relying on income from franchises alone can be rather risky. Why? Franchise agreements aren’t forever and as such, they can end. What happens if many franchisees terminate their agreement? However unlikely, it’s still a business risk and by continuing to build and operate company-owned branches, they can mitigate the potential effects of such a risk. Perhaps they should go full Donald Trump and establish a full-fledged real estate empire. They're already thinking about increasing the percentage of franchised restaurants, so it's clear that the company's leadership is leaning in that direction.