6

I was wondering, what does negative Total Equity means in McDonald's balance sheet?

Please refer to https://finance.google.com/finance?q=NYSE%3AMCD&fstype=ii&ei=3ZDCWaDdFcyauATPnb6wBg

For "Total Equity" row, it is showing "-2,204.30 million" As of 2016-12-31 

enter image description here

According to http://www.investopedia.com/video/play/what-does-negative-shareholder-equity-balance-sheet-mean/

"When shareholder equity is negative, it’s often due to the accounting methods used to deal with accumulated losses in previous years. Such losses are generally viewed as liabilities that carry forward until future cancellation. Often, they exist only on paper, which enables a company to stay open even with large, ongoing losses"

But, isn't McDonald a very healthy company, and never lost money?

9

what does negative Total Equity means in McDonald's balance sheet?

It means that their liabilities exceed their total assets. Usually it means that a company has accumulated losses over time, but that's just one explanation.

But, isn't McDonald a very healthy company, and never lost money?

Just because a company has "always" made money does not mean it's a healthy company. It may have borrowed a lot of money in order to operate, and now the growth is not able to keep up with the debt load.

In McDonald's case, the major driver in the equity change is the fact that they have bought back over $20 Billion in stock over the past few years, which reduces assets and equity. If they had instead paid off debt, their equity would not be negative, but either their debt has a low enough interest rate or their stock is so undervalued that it made more financial sense to buy back stock instead of paying off debt. There are too many variables to assess that in this forum.

  • Why isn't the bought back stock a positive contribution to total equity? – Workplace GDPR Dec 13 '17 at 17:39
  • 3
    Because equity on the balance sheet is shareholder's equity. When a company buys back stock, those shares are removed from the public. Remaining investors now have a larger percentage of a smaller pie (since the assets are reduced) - their total value is theoretically unchanged. It shows up in "treasury stock" as a negative number (shares that were in the public but removed) – D Stanley Dec 13 '17 at 17:44

protected by Chris W. Rea Jan 22 at 1:56

Thank you for your interest in this question. Because it has attracted low-quality or spam answers that had to be removed, posting an answer now requires 10 reputation on this site (the association bonus does not count).

Would you like to answer one of these unanswered questions instead?

Not the answer you're looking for? Browse other questions tagged or ask your own question.