Why does Yum Brands have negative shareholder equity?

YUM has -$7.5B in shareholder equity because it has returned more capital to shareholders (via dividends and buybacks) than it has accumulated in retained earnings. With 81% of earnings returned to shareholders annually and minimal reinvestment needs (CapEx `<3%` of revenue), YUM depletes equity while maintaining $2B+ operating cash flow. This is typical for mature, cash-generative franchise models.

Is negative equity a sign of financial distress?

Not in franchise models. YUM's negative equity exists alongside $1.6B annual free cash flow, 51% ROIC, and $2B operating cash flow. The company returned $1.0B to shareholders in 9 months (Q1-Q3 2025) while generating strong cash. Negative equity signals aggressive capital returns, not capital consumption. Compare this to traditional distress, where negative equity occurs from losses depleting the balance sheet.

What is Yum Brands' current ROIC and how does it compare to peers?

YUM's ROIC is 50.8% (Q3 2025 TTM), which is 2.2x McDonald's 22.8% and 2.5x Chipotle's 20.4%. The key difference: YUM franchises 98% of locations (minimal capital base), MCD franchises 95% (hybrid model), and CMG owns 100% (capital-intensive). Pure franchise models generate higher ROIC by eliminating asset ownership.

How does Yum Brands' franchise model create high ROIC?

YUM's franchise model creates high ROIC through three mechanisms: (1) Minimal CapEx intensity (`<3%` of revenue) since franchisees own real estate and equipment, (2) High FCF conversion ($2.0B operating cash flow - $380M CapEx = $1.6B FCF), and (3) Royalty revenue requires no incremental capital. This generates 5.99x fixed asset turnover vs CMG's 4.82x, driving ROIC despite similar NOPAT margins.

What are the risks to Yum Brands' capital efficiency?

Key risks include: (1) Franchisee financial health—if franchisees struggle, royalty revenue declines, (2) Competitive dynamics—delivery apps (DoorDash, Uber Eats) disintermediate the brand relationship, (3) International exposure—YUM has significant China exposure subject to geopolitical risk, (4) Brand erosion—Pizza Hut's -1% same-store sales decline triggered a strategic review, and (5) Labor inflation—rising wages pressure franchisees, potentially reducing royalty base.

How do I know if negative equity is good or bad for a company?

Negative equity is a FEATURE when: (1) Operating cash flow is positive and growing, (2) CapEx intensity is low (`<5%` of revenue), (3) Business model is asset-light (franchises, SaaS, IP licensing), (4) Capital returns are funded by FCF, not debt issuance. It's a BUG when: (1) Losses are depleting equity, (2) High debt + negative equity = overleveraged, (3) CapEx needs are rising (consuming capital), (4) Operating cash flow is negative or declining.

Why is Chipotle's ROIC lower despite having positive equity?

CMG's 20.4% ROIC with +$3.2B equity reflects its corporate-owned model. CMG must invest in real estate, kitchen equipment, and inventory for every new restaurant, creating a capital-intensive model. YUM franchises 98% of locations, so franchisees bear these costs. CMG's 4.82x asset turnover is lower than YUM's 5.99x because CMG owns assets. Positive equity here isn't better—it signals capital hoarding rather than efficiency.

What is the DuPont formula and how does it apply to franchise models?

The DuPont formula decomposes ROIC: ROIC = NOPAT Margin × Asset Turnover × Leverage Factor. For YUM: 22.4% NOPAT margin × 2.0x asset turnover × leverage = 50.8% ROIC. Franchise models win on asset turnover (minimal capital base), not margins. YUM's 22.4% NOPAT margin is lower than MCD's 36.3%, but YUM's higher turnover and leverage drive superior ROIC. This reveals that franchise efficiency comes from capital structure, not operating margins.

Should I compare Yum Brands' ROIC to tech stocks like NVIDIA?

No. NVDA's 161.5% ROIC reflects different dynamics: semiconductor capital intensity, winner-take-all network effects, and cyclical volatility. YUM's 50.8% ROIC is more stable (low volatility) due to recurring royalty revenue and franchise model durability. Compare within business model type: YUM vs MCD/DPZ (franchise peers), not YUM vs NVDA/APP (tech). Risk-adjusted, YUM's stable 50% may be superior to NVDA's volatile 160%.

Where can I see Yum Brands' full operational efficiency metrics?

MetricDuck's Operational Efficiency & Returns card shows YUM's ROIC decomposition, sector benchmarking, CapEx efficiency, and 8-quarter trends. The card reveals equity status, helping investors distinguish between negative equity from capital returns (good) vs losses (bad). Visit the YUM company page to see full metrics, or compare YUM vs MCD vs CMG to understand franchise model differences.

Yum Brands' shareholder equity is -$7.5 billion. Yet its ROIC is 50.8% - 2.2x McDonald's 22.8%. This isn't financial engineering. It's the byproduct of franchise economics: when a business doesn't need capital, it returns excess to shareholders. We break down the mechanism behind negative equity in asset-light models.

YUM's 51% ROIC with -$7.5B Equity: Franchise Model Paradox

Q: Is negative equity a sign of financial distress?

Not in franchise models. YUM's negative equity exists alongside $1.6B annual free cash flow, 51% ROIC, and $2B operating cash flow. The company returned $1.0B to shareholders in 9 months (Q1-Q3 2025) while generating strong cash. Negative equity signals aggressive capital returns, not capital consumption. Compare this to traditional distress, where negative equity occurs from losses depleting the balance sheet.

Q: What is Yum Brands' current ROIC and how does it compare to peers?

YUM's ROIC is 50.8% (Q3 2025 TTM), which is 2.2x McDonald's 22.8% and 2.5x Chipotle's 20.4%. The key difference: YUM franchises 98% of locations (minimal capital base), MCD franchises 95% (hybrid model), and CMG owns 100% (capital-intensive). Pure franchise models generate higher ROIC by eliminating asset ownership.

Q: How does Yum Brands' franchise model create high ROIC?

YUM's franchise model creates high ROIC through three mechanisms: (1) Minimal CapEx intensity (`<3%` of revenue) since franchisees own real estate and equipment, (2) High FCF conversion ($2.0B operating cash flow - $380M CapEx = $1.6B FCF), and (3) Royalty revenue requires no incremental capital. This generates 5.99x fixed asset turnover vs CMG's 4.82x, driving ROIC despite similar NOPAT margins.

Q: What are the risks to Yum Brands' capital efficiency?

Key risks include: (1) Franchisee financial health—if franchisees struggle, royalty revenue declines, (2) Competitive dynamics—delivery apps (DoorDash, Uber Eats) disintermediate the brand relationship, (3) International exposure—YUM has significant China exposure subject to geopolitical risk, (4) Brand erosion—Pizza Hut's -1% same-store sales decline triggered a strategic review, and (5) Labor inflation—rising wages pressure franchisees, potentially reducing royalty base.

Q: How do I know if negative equity is good or bad for a company?

Negative equity is a FEATURE when: (1) Operating cash flow is positive and growing, (2) CapEx intensity is low (`<5%` of revenue), (3) Business model is asset-light (franchises, SaaS, IP licensing), (4) Capital returns are funded by FCF, not debt issuance. It's a BUG when: (1) Losses are depleting equity, (2) High debt + negative equity = overleveraged, (3) CapEx needs are rising (consuming capital), (4) Operating cash flow is negative or declining.

Q: Why is Chipotle's ROIC lower despite having positive equity?

CMG's 20.4% ROIC with +$3.2B equity reflects its corporate-owned model. CMG must invest in real estate, kitchen equipment, and inventory for every new restaurant, creating a capital-intensive model. YUM franchises 98% of locations, so franchisees bear these costs. CMG's 4.82x asset turnover is lower than YUM's 5.99x because CMG owns assets. Positive equity here isn't better—it signals capital hoarding rather than efficiency.

Q: What is the DuPont formula and how does it apply to franchise models?

The DuPont formula decomposes ROIC: ROIC = NOPAT Margin × Asset Turnover × Leverage Factor. For YUM: 22.4% NOPAT margin × 2.0x asset turnover × leverage = 50.8% ROIC. Franchise models win on asset turnover (minimal capital base), not margins. YUM's 22.4% NOPAT margin is lower than MCD's 36.3%, but YUM's higher turnover and leverage drive superior ROIC. This reveals that franchise efficiency comes from capital structure, not operating margins.

Q: Should I compare Yum Brands' ROIC to tech stocks like NVIDIA?

No. NVDA's 161.5% ROIC reflects different dynamics: semiconductor capital intensity, winner-take-all network effects, and cyclical volatility. YUM's 50.8% ROIC is more stable (low volatility) due to recurring royalty revenue and franchise model durability. Compare within business model type: YUM vs MCD/DPZ (franchise peers), not YUM vs NVDA/APP (tech). Risk-adjusted, YUM's stable 50% may be superior to NVDA's volatile 160%.

Q: Where can I see Yum Brands' full operational efficiency metrics?

MetricDuck's Operational Efficiency & Returns card shows YUM's ROIC decomposition, sector benchmarking, CapEx efficiency, and 8-quarter trends. The card reveals equity status, helping investors distinguish between negative equity from capital returns (good) vs losses (bad). Visit the YUM company page to see full metrics, or compare YUM vs MCD vs CMG to understand franchise model differences.

Last Updated: January 3, 2026 Data Currency: YUM Q3 2025 10-Q (filed Nov 7, 2025), MCD Q3 2025 10-Q, CMG Q3 2025 10-Q. SEC EDGAR

Yum Brands has -$7.5 billion in shareholder equity. Traditional financial screening would flag this as distress—bankruptcy risk, overleveraged, avoid.

But YUM's ROIC is 50.8%—more than double McDonald's 22.8%.

This isn't financial engineering. It's capital efficiency.

The Numbers That Don't Add Up (Until They Do):

YUM: -$7.5B equity, 50.8% ROIC, $1.6B FCF, 98% franchised
MCD: -$2.2B equity, 22.8% ROIC, $6.3B FCF, 95% franchised
CMG: +$3.2B equity, 20.4% ROIC, $1.7B FCF, 0% franchised (all corporate-owned)

Chipotle has positive equity and lower returns. What's going on?

Why This Matters: The Misunderstood Metric

Most retail investors use negative equity as a red flag. Screeners filter it out. Value investors avoid it. The heuristic makes sense for most businesses—if liabilities exceed assets, the company is insolvent.

But mature franchise models break this heuristic.

Yum Brands (KFC, Taco Bell, Pizza Hut, Habit Burger) generates $2.0 billion in operating cash flow annually. It returned $1.0 billion to shareholders in just 9 months (Q1-Q3 2025)—$779M in dividends plus $330M in buybacks. The franchise model requires minimal reinvestment: CapEx intensity is 2-3% of revenue because franchisees own the restaurants.

The result? YUM returns capital faster than it accumulates earnings, depleting shareholder equity. But this depletion signals efficiency, not distress.

The Analytical Thesis: Negative equity is a byproduct of franchise economics. When a business model doesn't need capital, returning excess capital creates negative equity. The "artificial" part is the metric calculation, not the underlying efficiency.

The Capital Allocation Math: How Negative Equity Happens

The Formula

Shareholder Equity = Assets - Liabilities
If (Cumulative Dividends + Buybacks) > (Cumulative Net Income - CapEx), then Equity → Negative

This isn't theory. Here are YUM's actual numbers from the Q3 2025 10-Q:

YUM's Balance Sheet (Sept 30, 2025):

Total Assets: $7.2B
Total Liabilities: $14.7B
Shareholder Equity: -$7.5B

The Mechanism: Three Drivers

1. Minimal Reinvestment Needs

YUM's CapEx intensity is 2.8% of revenue (TTM). For every $100 in revenue, YUM reinvests $2.80 in capital. Compare this to Chipotle's ~6% CapEx intensity—CMG must build restaurants, install kitchens, and stock inventory.

YUM's $380M annual CapEx goes to:

Corporate IT systems (digital ordering platforms)
Brand headquarters (two U.S. locations post-consolidation)
Reacquired franchise territories (e.g., KFC UK & Ireland, $90M goodwill)

Franchisees bear 98% of the capital burden.

2. High Free Cash Flow Conversion

Operating Cash Flow: $2.0B (TTM) CapEx: $380M Free Cash Flow: $1.6B

FCF margin is 19.0% (8-quarter median). For every dollar of revenue, YUM converts 19 cents to distributable cash. This conversion is possible because:

Royalty revenue (4-6% of franchisee sales) is collected monthly
No inventory risk—franchisees manage supply
No real estate exposure—franchisees own or lease locations

3. Aggressive Capital Returns

Q1-Q3 2025 Capital Returns:

Dividends paid: $779M (50.4% of earnings, 8Q median payout ratio)
Stock buybacks: $330M (31.2% of TTM earnings)
Combined: 81% of earnings returned to shareholders

For context, traditional retailers return 20-40% of earnings. YUM returns double because it doesn't need to hoard capital.

The Control Group: Why Chipotle Has Positive Equity (And Lower ROIC)

To validate the mechanism, compare YUM to Chipotle—same industry (fast-casual/QSR), opposite capital structure.

Chipotle's Numbers (Q3 2025)

CMG Balance Sheet:

Total Equity: +$3.2B (POSITIVE)
ROIC: 20.4%
Franchise %: 0% (all corporate-owned)
CapEx Intensity: ~6% of revenue
Asset Turnover: 4.82x

Why CMG Has Positive Equity

CMG retains capital for two reasons:

Growth Reinvestment: CMG opened 271 new restaurants in 9 months (2025 YTD), requiring ~$850K CapEx per unit. This demands capital accumulation.
Lower Payout Ratio: CMG's capital return ratio is ~35% (buybacks, no dividend). YUM's is 81%.

CMG's positive equity reflects capital hoarding for growth, not superior financial health.

Why CMG's ROIC is Lower

Despite positive equity, CMG's 20.4% ROIC trails YUM's 50.8% because:

CMG must own assets: Every new Chipotle requires $1M+ in real estate, kitchens, and equipment. This inflates the capital base (denominator in ROIC).
YUM outsources capital: Franchisees fund 98% of units. YUM's capital base is minimal—just corporate systems and brand infrastructure.

Fixed Asset Turnover:

YUM: 5.99x (revenue / PP&E)
CMG: 4.82x

YUM generates $5.99 of revenue per dollar of fixed assets. CMG generates $4.82. The 24% gap comes from ownership structure, not operating efficiency.

The Peer Comparison: Franchise Mix Determines ROIC

Let's expand to all major restaurant operators to test if the pattern holds.

ROIC vs Franchise Mix (Q3 2025 Data)

Company	ROIC	Equity	Franchise %	Fixed Asset Turnover	CapEx Intensity
DPZ	199.2%	-$4.0B	98% (pure)	15.80x	~2%
YUM	50.8%	-$7.5B	98% (pure)	5.99x	2.8%
MCD	22.8%	-$2.2B	95% (hybrid)	1.00x	~3%
CMG	20.4%	+$3.2B	0% (corporate)	4.82x	~6%
SBUX	11.6%	-$8.1B	Mixed (~60%)	4.33x	~4%

Pattern Validation:

Pure franchisers (DPZ, YUM) have extreme ROIC (>50%), negative equity, very high asset turnover
Hybrid model (MCD) has moderate ROIC (23%), negative equity, lower turnover (some corporate stores)
Corporate-owned (CMG) has lowest ROIC (20%), positive equity, moderate turnover
Mixed (SBUX) has lowest ROIC (12%), negative equity, moderate turnover

Note on DPZ: Domino's 199% ROIC reflects near-zero assets (franchise model extreme). YUM's 51% is more instructive for analysis given its meaningful asset base and 4-brand portfolio diversity.

DuPont Decomposition: Where YUM's ROIC Comes From

The DuPont formula breaks ROIC into components:

ROIC = NOPAT Margin × Invested Capital Turnover × Leverage Factor

YUM's DuPont Breakdown (Q3 2025 TTM)

NOPAT Margin: 22.4%

This is lower than MCD's 36.3%
Why? YUM has more overhead (4 brands vs MCD's 1), newer acquisitions (Habit Burger losses), and brand HQ consolidation costs

Invested Capital Turnover: 2.0x (8Q median)

Revenue / Invested Capital = $8.2B / $4.5B = 1.82x
This is higher than CMG's ~1.4x because YUM's invested capital excludes franchisee assets

Leverage Factor: ~2.0x (implied)

YUM's $11.6B debt amplifies returns
96% fixed-rate at 4.5% effective rate (low refinancing risk)
Debt is 96% long-term (maturities beyond 2027)

The Math: 22.4% × 2.0x × ~2.0x ≈ 50.8% ROIC

The Critical Insight

YUM's ROIC doesn't come from margins. NOPAT margin is lower than MCD's. It comes from:

Asset turnover (franchise model eliminates capital base)
Leverage (stable debt amplifies returns on minimal equity)

This is why comparing YUM to tech stocks is misleading. NVDA's 161.5% ROIC comes from IP monopoly and operational leverage. YUM's 50.8% comes from financial structure—outsourcing capital to franchisees.

Segment Performance: Where the Efficiency Diverges

YUM isn't a monolith. The 4-brand portfolio shows divergence in same-store sales growth (SSS)—a leading indicator of future capital efficiency.

Q3 2025 Segment Performance (YUM 10-Q)

Brand	SSS Growth (Q3)	Operating Income	Revenue (Q)	Trend
Taco Bell	+7%	$770M	$730M	🟢 Improving
KFC	+3%	$1.09B	$879M	🟢 Stable
Pizza Hut	-1%	$84M	$240M	🔴 Declining
Habit Burger	+1%	-$2M (loss)	$134M	🟡 Struggling

Key Findings

1. Taco Bell is the Growth Engine

+7% SSS growth (Q3 2025) vs +6% in Q2 2025 (accelerating)
$770M operating profit on $730M revenue (margin >100% due to royalty accounting)
Franchise model: 7% SSS × royalty rate (4-6%) = +7-10% royalty revenue growth
Digital ordering adoption cited in MD&A as key driver

2. Pizza Hut is in Strategic Review

-1% SSS decline (Q3 2025)—the only brand with negative SSS
$4M consulting costs for "strategic options review" (Q3 2025 10-Q disclosure)
Franchise terminations: Turkey franchise agreement ended, 250+ units closed
Implication: Management sees structural issues beyond cyclical weakness

3. Habit Burger Remains Unprofitable

-$2M operating loss despite +1% SSS growth
Corporate-owned model (not franchised) = capital-intensive drag
Small scale: Only $134M quarterly revenue vs Taco Bell's $730M

Analytical Implication

YUM's consolidated 50.8% ROIC masks brand-level divergence. If Pizza Hut is sold or spun off, YUM's ROIC could rise (eliminating underperforming segment). If Taco Bell's +7% SSS continues, royalty revenue growth accelerates without capital deployment.

The franchise model advantage: YUM can exit underperforming brands (Pizza Hut) without stranded capital. CMG can't—every closed Chipotle means writing off real estate and equipment.

How to Use the Operational Efficiency Card to Spot This

MetricDuck's Operational Efficiency & Returns card reveals equity status and ROIC decomposition—helping investors distinguish between negative equity from efficiency vs distress.

Key features for franchise model analysis:

Hero Metric: ROIC with 8Q sparkline, sector percentile (YUM: top quartile of 938 companies), and quality badge ("Excellent" for >40% ROIC)
DuPont Decomposition: Visual breakdown shows YUM's returns come from asset turnover (2.0x) + leverage, not margins (22.4%)—the franchise model signature
Asset Efficiency: Fixed asset turnover of 5.99x vs CMG's 4.82x confirms minimal capital base
CapEx Efficiency: 2.8% intensity validates franchise model; CapEx/Depreciation ratio flags underinvestment risk
Filing Intelligence: Extracts MD&A insights like Taco Bell's +7% SSS growth (green flag) and Pizza Hut's strategic review (red flag)

The key insight: The card distinguishes margin-driven ROIC (tech, pharma—volatile) from turnover-driven ROIC (franchises—durable structural advantage).

When is Negative Equity Good vs Bad? The Framework

Negative equity isn't inherently good or bad. It depends on the cause.

✅ Negative Equity as a FEATURE

Criteria:

Operating cash flow is positive and growing
- YUM: $2.0B OCF, +17% YoY
- ✅ Pass
CapEx intensity is low (<5% of revenue)
- YUM: 2.8%
- ✅ Pass
Business model is asset-light
- YUM: 98% franchised
- ✅ Pass
Capital returns are funded by FCF, not debt
- YUM: $1.0B returned vs $1.6B FCF
- ✅ Pass

Other examples: DPZ (franchises), VeriSign (domain registry, 234% ROIC), MarketAxess (electronic trading)

❌ Negative Equity as a BUG

Criteria:

Losses are depleting equity
- If negative equity grows while net income is negative, avoid
High debt + negative equity = overleveraged
- If Net Debt / EBITDA >6x, debt sustainability is questionable
- YUM: Net Debt / EBITDA = 5.1x (borderline but stable)
CapEx needs are rising (consuming capital)
- If CapEx > Depreciation for multiple years, capital demands are increasing
Operating cash flow is negative or declining
- If OCF is negative, negative equity signals capital burn

Examples to avoid: Unprofitable tech startups, overleveraged retailers (pre-bankruptcy), commodity companies in downcycles

Risks to YUM's Capital Efficiency

Despite 50.8% ROIC, YUM faces structural risks that could erode returns:

1. Franchisee Financial Health

Evidence: Turkey franchise termination (250 units), Germany reacquisition ($1M severance). YUM's capital efficiency depends on franchisee solvency—labor inflation and competitive pressure could squeeze margins.

2. Pizza Hut Decline

Evidence: -1% SSS growth, $4M strategic review costs (Q3 2025). Potential sale below book value creates writedown risk; spinoff requires revenue replacement.

3. International Exposure (China Risk)

Risk: KFC China is a major revenue driver exposed to geopolitical volatility. Trade tensions or regulatory changes could impact same-store sales growth.

4. Delivery App Disintermediation

Risk: Third-party apps (DoorDash, Uber Eats) take 15-30% commission and own customer data. Compressed franchisee margins reduce YUM's royalty base.

5. IRS Tax Dispute ($2.1B)

Evidence: Tax Court litigation over $2.1B underpayment + $418M penalties. Potential $2.5B payment could force asset sales or dividend cuts given $1.2B cash position.

Honest Limitations: What We Can't Claim

In the spirit of analytical integrity, here's what our 2-quarter dataset doesn't support:

❌ "YUM's 71.6% 5-Year Average ROIC"

External sources (GuruFocus, FinanceCharts) cite a 5-year average ROIC of 71.6%. Our Q3 2025 TTM ROIC is 50.8%.

What we don't know:

Whether the discrepancy is methodology (different ROIC formulas)
Whether one-time events distorted prior years (e.g., asset sales, writedowns)
Whether the 71.6% figure includes DPZ-like extreme calculations

Honest statement: With only 2 quarters of extracted data, we can't confirm historical ROIC trends. Our 50.8% is directly from SEC filings and calculated consistently with peers.

❌ "8-Quarter ROIC Volatility is Low"

We expect YUM's ROIC volatility to be low (franchise revenue is stable). But we haven't calculated 8-quarter standard deviation.

What we need: Q1 2024 through Q3 2025 data (8 quarters) to compute coefficient of variation.

Honest statement: When full 8-quarter data is extracted, MetricDuck's Operational Efficiency card will display volatility badges. For now, we infer low volatility from business model characteristics.

❌ "YUM is a Better Investment Than CMG"

Different business models serve different investor goals:

YUM: Lower growth (+4% revenue YoY), higher ROIC, higher payout ratio (81%), lower valuation
CMG: Higher growth (+7% revenue YoY), lower ROIC, lower payout ratio (35%), higher valuation

YUM suits: Income investors seeking dividends + stable ROIC CMG suits: Growth investors willing to sacrifice efficiency for expansion

Honest statement: We analyze capital efficiency, not investment suitability. Investors must weigh growth, valuation, and risk tolerance.

Conclusion: Negative Equity is a Signal, Not a Sentence

The finance textbooks teach that negative equity equals distress. But mature franchise models break the rule.

Yum Brands' -$7.5B equity exists alongside:

$2.0B operating cash flow
$1.6B free cash flow
50.8% ROIC
$1.0B returned to shareholders in 9 months

This isn't financial distress. It's aggressive capital allocation by a business that doesn't need to hoard capital.

The Analytical Framework

Use this checklist to evaluate negative equity:

✅ Green Flags (Efficiency Signal):

OCF positive and growing
CapEx intensity <5%
Asset-light business model
Capital returns funded by FCF

🟡 Yellow Flags (Monitor Closely):

Net Debt / EBITDA >5x
CapEx rising faster than revenue
Franchisee/partner distress signals

🔴 Red Flags (Avoid):

Net income negative
OCF negative or declining
Debt-funded buybacks
Asset-heavy model with negative equity

The Product Insight

MetricDuck's Operational Efficiency card turns a screening red flag (negative equity) into an analytical insight:

Shows equity status in balance sheet snapshot
Decomposes ROIC to reveal turnover vs margin drivers
Displays CapEx efficiency to confirm low reinvestment needs
Extracts MD&A commentary on franchisee health and brand performance

Without the card: You might filter YUM out for negative equity. With the card: You see the mechanism—franchise model + capital returns = structural efficiency.

ROIC Complete Investor Guide - Framework for evaluating return on invested capital across sectors
Retail ROIC Comparison: Costco vs Walmart - How asset turnover drives ROIC in membership models
Eli Lilly vs AbbVie ROIC - Comparing capital efficiency in patent-driven pharma models

Data Sources & Methodology

Primary Data:

Yum Brands Q3 2025 10-Q (filed Nov 7, 2025) - SEC EDGAR
McDonald's Q3 2025 10-Q (filed Nov 5, 2025)
Chipotle Q3 2025 10-Q (filed Oct 30, 2025)
Domino's Q3 2025 10-Q (filed Oct 14, 2025)
Starbucks FY 2025 10-K (filed Nov 14, 2025)

Metrics Calculation:

ROIC = NOPAT / Invested Capital (asset-based formula)
NOPAT = Operating Income × (1 - Effective Tax Rate)
Invested Capital = Operating Assets - Non-Interest Bearing Liabilities
Fixed Asset Turnover = Revenue / PP&E (net)
CapEx Intensity = CapEx / Revenue

Sector Benchmarks: 938-company non-financial dataset (FY 2023-2024)

Disclosure: This analysis is for educational purposes. Not investment advice. Author may hold positions in discussed companies. Perform your own due diligence.

Data Extracted: January 3, 2026 Next Update: After YUM Q4 2025 earnings (expected February 2026)

See Full Metrics: Compare YUM vs MCD vs CMG on MetricDuck

YUM's 51% ROIC with -$7.5B Equity: Franchise Model Paradox

YUM's 51% ROIC with -$7.5B Equity: Franchise Model Paradox

Why This Matters: The Misunderstood Metric

The Capital Allocation Math: How Negative Equity Happens

The Formula

The Mechanism: Three Drivers

1. Minimal Reinvestment Needs

2. High Free Cash Flow Conversion

3. Aggressive Capital Returns

The Control Group: Why Chipotle Has Positive Equity (And Lower ROIC)

Chipotle's Numbers (Q3 2025)

Why CMG Has Positive Equity

Why CMG's ROIC is Lower

The Peer Comparison: Franchise Mix Determines ROIC

ROIC vs Franchise Mix (Q3 2025 Data)

DuPont Decomposition: Where YUM's ROIC Comes From

YUM's DuPont Breakdown (Q3 2025 TTM)

The Critical Insight

Segment Performance: Where the Efficiency Diverges

Q3 2025 Segment Performance (YUM 10-Q)

Key Findings

1. Taco Bell is the Growth Engine

2. Pizza Hut is in Strategic Review

3. Habit Burger Remains Unprofitable

Analytical Implication

How to Use the Operational Efficiency Card to Spot This

When is Negative Equity Good vs Bad? The Framework

✅ Negative Equity as a FEATURE

❌ Negative Equity as a BUG

Risks to YUM's Capital Efficiency

1. Franchisee Financial Health

2. Pizza Hut Decline

3. International Exposure (China Risk)

4. Delivery App Disintermediation

5. IRS Tax Dispute ($2.1B)

Honest Limitations: What We Can't Claim

❌ "YUM's 71.6% 5-Year Average ROIC"

❌ "8-Quarter ROIC Volatility is Low"

❌ "YUM is a Better Investment Than CMG"

Conclusion: Negative Equity is a Signal, Not a Sentence

The Analytical Framework

The Product Insight

Related Analysis

Data Sources & Methodology

MetricDuck Research