Mc Donald Makes Most Of Its Profit Changing Rent Not Selling Food/Operation Confidence 

 7 Businesses Making Lots Of Money In Ways You Wouldn't Expect

It's true -- most companies reap profits in obvious ways. Google earns a lot of money through advertising, Apple from selling iPhones and iPads and retail stores like Gap through selling clothing and other items.
But every so often, a company comes along that figures out how to make money in a surprising or unconventional way. 

A lot of the time, as Michael Porter points out in the famed text "How Competitive Forces Shape Strategy," this is a result of stiff competition forcing organizations to think creatively about profits in order to survive. Here are just a few examples:

 McDonald's earns a majority of its profit charging rent, not selling food.

An important part of business acumen training is to understand a company's business model. By this I simply mean "how a company makes money." An important metric developed many years ago by the financial analysts at the DuPont Corporation is called the Return on Assets (ROA) or "DuPont" model.  It is a useful framework to describe how a company makes money. The model demonstrates that a company's return on assets is a product of its net profit margin and total asset turnover.  So for example, the business model of a company with a high margin and a low turnover is exemplified by an upscale jewelry store.  A supermarket is a good example of a business that makes money with a low profit margin and a high asset turnover.

Using the DuPont model, how do you think McDonald's makes its money?  As you imagine all those millions of people served each day and the billions of hamburgers that the company has sold since it began over forty years ago, I'm sure you're thinking "low margin, high asset turnover."  Well it so happens that it is exactly the opposite. Its five-year average net profit margin is about 18 percent!  Its total asset turnover of slightly less than .8 might be equally surprising. (In the retail food business, average net profit margin is around 2 percent and total asset turnover is about 2.0.)

McDonald's exceptionally high profit margin is a result of its pricing power (both to suppliers and to customers) and the fact that rent is an extremely high profit item. (What is the "cost of goods sold" of rent?)  Its relatively low turnover is because of the asset value of the land and buildings that it owns.  The net asset value of these fixed assets at the end of 2011 was about $22 billion, out of total asset base of about $32 billion.  

About two-thirds of its revenue comes from its company-owned stores (comprising about 25 percent of all its  restaurants) and the rest comes from franchise fees and rent.  An interesting summary of its financial performance can be found it a popular investor blog:  www.the dividendpig.com.