One temptation for classic-growth companies is to stoke growth by getting into businesses or markets that offer limited profitability. Because the businesses of classic-growth firms are more mature, there are fewer obvious avenues of expansion. Willy-nilly expansion can make the top and bottom lines grow--even if return on capital suffers.
But maintaining shareholders' return on capital hasn't been a problem for McDonald's. Over the past five years, returns on equity (ROEs) have consistently been in the 18% to 19% range, and returns on assets (ROAs) have been just as steady. Returns on capital dipped slightly in 1998 because of a couple of one-time write-offs, but it bounced back in 1999.
What Is the Company Doing with Its Profits? >>