# McKesson (MCK) Financial Model Free Excel 3-statement financial model and company analysis for McKesson. - Canonical: https://finamodel.com/companies/mckesson - Industry: Healthcare Services - Downloadable model: Yes - Excel download: https://finamodel.com/company-models/MCK.xlsx ## Model Purpose This model provides a sum-of-the-parts (SOTP) equity valuation and scenario analysis tool for an equity research analyst covering McKesson, specifically designed to evaluate the financial impact of the planned separation of the Medical-Surgical Solutions segment and the margin accretion from the expanding Oncology and Biopharma platforms. Reported financials cover fiscal years ended March 31, 2021–2025, using SEC annual filings available through May 9, 2025. Net income is attributable to McKesson; total equity includes noncontrolling interests. Capex includes property, plant and equipment plus capitalized software; free cash flow equals operating cash flow less both. The downloadable workbook is an illustrative scenario model: its rounded historical inputs are not the reconciled SEC table below. ## Company Overview McKesson Corporation is a leading global healthcare services and information technology company that distributes pharmaceuticals and medical supplies. The company acts as a critical intermediary in the healthcare supply chain, purchasing wholesale products from manufacturers and distributing them to pharmacies, hospitals, and clinics. **Business Segments:** * **U.S. Pharmaceutical:** ~91% of revenue * **International:** ~4% of revenue * **Medical-Surgical Solutions:** ~3% of revenue * **Prescription Technology Solutions (RxTS):** ~2% of revenue (Note: Percentages are approximate based on FY2025 revenue of $359 billion). **Key Geographies:** Primarily the United States, with a smaller footprint in Canada and Europe (though European operations have been largely divested). **Business Model Type:** Asset-light, high-volume, low-margin distribution model with negative/neutral working capital dynamics. **Competitive Position:** Part of the "Big Three" U.S. pharmaceutical distributors (alongside Cencora/AmerisourceBergen and Cardinal Health), operating in a highly consolidated oligopoly. **Recent Major Events:** In FY2025, McKesson announced its intent to separate the Medical-Surgical Solutions segment into an independent company. The company also closed the sale of its Canada-based Rexall and Well.ca retail businesses in December 2024 and announced the acquisition of a controlling interest in Florida Cancer Specialists & Research Institute LLC's Core Ventures (expected to close June 2025). ## Revenue Deep Dive ### U.S. Pharmaceutical * **Segment Name:** U.S. Pharmaceutical * **Revenue Driver Formula:** (Branded Drug Volume x Branded Price) + (Generic Drug Volume x Generic Price) + Specialty/Oncology Volume * **Historical Growth Rate:** 12% - 18% (FY25 saw 18% growth) * **Key Growth Levers and Headwinds:** Driven by GLP-1 utilization, specialty pharmaceutical growth, and retail national account volumes. Headwinds include branded-to-generic conversions (which lower top-line revenue but often improve margin percentages). * **Pricing Dynamics:** Highly contractual, often structured as cost-minus or wholesale acquisition cost (WAC) minus a discount. * **Revenue Recognition:** Recognized upon delivery of products to customers (point in time). * **Seasonality:** Mildly stronger in the winter months due to cold/flu and vaccine seasons. ### Prescription Technology Solutions (RxTS) * **Segment Name:** Prescription Technology Solutions * **Revenue Driver Formula:** Transaction Volume x Fee per Transaction + Subscription/Service Fees * **Historical Growth Rate:** 9% - 11% * **Key Growth Levers and Headwinds:** Growth in third-party logistics, access/affordability solutions, and prior authorization transaction volumes. * **Pricing Dynamics:** Transaction-based fees and SaaS-like subscription models. * **Revenue Recognition:** Recognized over time as services are provided or per transaction. * **Seasonality:** Generally stable, tied to overall prescription volumes. ### Medical-Surgical Solutions * **Segment Name:** Medical-Surgical Solutions * **Revenue Driver Formula:** Medical Supply Volume x Price per Unit * **Historical Growth Rate:** Flat to 2% (FY25 was 1%) * **Key Growth Levers and Headwinds:** Primary care utilization and alternate-site care growth. Headwinds include the decline of illness season testing (e.g., COVID-19/flu kits). * **Pricing Dynamics:** Contractual, highly competitive. * **Revenue Recognition:** Point in time upon delivery. * **Seasonality:** Correlated with elective surgery volumes and respiratory illness seasons. ### International * **Segment Name:** International * **Revenue Driver Formula:** Regional Distribution Volume x Price (adjusted for FX) * **Historical Growth Rate:** 2% - 4% * **Key Growth Levers and Headwinds:** Canadian pharmaceutical distribution volumes. Headwinds include FX fluctuations and the divestiture of the Canadian retail disposal group (Rexall/Well.ca). * **Pricing Dynamics:** Heavily regulated by government health authorities (e.g., Canadian provincial drug plans). * **Revenue Recognition:** Point in time upon delivery. * **Seasonality:** Minimal, though FX translation impacts quarterly run-rates. ## Cost Structure ### Variable Costs / COGS * **Line-by-line breakdown:** Cost of sales consists primarily of the purchase price of pharmaceuticals and medical supplies, net of manufacturer rebates, discounts, and LIFO inventory adjustments. * **Gross margin range:** 3.5% - 4.5% (FY25 Gross Profit was $13.3B on $359B revenue = ~3.7%). * **Key input costs:** Wholesale Acquisition Cost (WAC) of drugs. * **How COGS scales:** Perfectly linear with revenue, though generic conversions and specialty mix shifts can cause slight basis-point fluctuations in gross margin. LIFO charges (e.g., $82M in FY25) impact COGS during periods of brand inflation. ### Operating Expenses * **R&D:** Negligible / not separately disclosed (bundled in SG&A). * **SG&A:** Total operating expenses run at ~$8.9B (flat YoY in FY25). This includes distribution center costs, transportation, sales, and administrative headcount. * **Depreciation & Amortisation:** Typically ~0.2% - 0.3% of revenue, primarily related to distribution center equipment and capitalized software. * **Stock-Based Compensation:** Relatively small as a % of revenue, but material to net income adjustments. * **Restructuring / one-time charges:** Frequent. FY25 included a $667M charge to remeasure the Canadian retail disposal group and $298M in restructuring charges for operational efficiencies. ### Margin Profile * **Gross margin:** ~3.7% * **EBITDA margin:** ~1.4% - 1.6% * **Operating margin:** ~1.2% (GAAP) * **Net margin:** ~0.9% - 1.0% (FY2025 net income attributable to McKesson of $3.295B on $359.051B revenue; consolidated net income including noncontrolling interests was $3.481B) * **Margin trend:** Stable to slightly expanding on an adjusted basis, driven by the higher-margin RxTS segment and specialty oncology growth, offsetting core distribution margin compression. ## Balance Sheet Structure * **Total assets:** $75.140B at March 31, 2025 * **Key asset categories:** Receivables (massive, tied to pharmacy/hospital payments), Inventory (massive, physical drugs), Goodwill (from historical acquisitions). * **Goodwill & intangibles:** Significant, reflecting a history of bolt-on and strategic acquisitions (e.g., US Oncology, RxCrossroads). * **Working capital profile:** * **DSO (workbook assumption):** 25 days * **DIO (workbook assumption):** 30 days * **DPO (workbook assumption):** 64 days * **Net working capital:** McKesson operates with highly efficient, often negative or near-zero net working capital, using supplier payment terms to fund inventory. * **PP&E:** Primarily distribution centers, material handling equipment, and IT infrastructure. * **Right-of-use assets:** Material, related to leased distribution facilities and office space. ## Capital Expenditure & Investment * **Capex as % of revenue:** Extremely low, ~0.2% - 0.3% (FY25 Capex was $859 million on $359 billion revenue). * **Maintenance vs. growth:** Heavily skewed toward maintenance and IT/automation upgrades in distribution centers. * **Major capex programmes:** Automation of fulfillment centers and investments in the RxTS technology platform. * **M&A pattern:** Active bolt-on acquirer, specifically targeting higher-margin oncology and biopharma services (e.g., Core Ventures, PRISM Vision). * **Divestitures:** Active portfolio management (e.g., European exit, Canadian retail exit, planned Medical-Surgical separation). ## Debt & Capital Structure * **Total debt:** Long-term debt decreased by $1.4B in FY25. * **Cash:** $4.3 billion (FY25). * **Debt/EBITDA ratio:** Typically managed around 1.5x - 2.0x. * **Credit rating:** Investment grade (typically BBB+ / Baa1 range). * **Key debt instruments:** Senior unsecured notes and commercial paper for working capital timing. * **Share repurchase programme:** Highly active. Repurchased $3.1 billion in FY25. Board approved a new $4.0 billion authorization in July 2024. * **Dividend policy:** Quarterly dividend of $0.71 per share (raised from $0.62 in July 2024). Total FY25 dividend payments were $345 million. ## Cash Flow Characteristics * **Operating cash flow conversion:** Very strong. FY25 OCF was $6.1 billion compared to Net Income of $3.48 billion. * **Free cash flow margin:** ~1.4% (FY25 FCF was $5.2 billion on $359 billion revenue). * **Major non-cash items:** Depreciation, amortization, LIFO inventory charges/credits, and restructuring/remeasurement charges (e.g., $667M Canadian retail charge). * **Working capital cash flow impact:** Highly seasonal. Quarter-end timing of days of the week can swing working capital cash flows by hundreds of millions due to the sheer volume of payables/receivables. * **Capex intensity:** Very low ($859M in FY25). ## Sheet Structure 1. **Assumptions & Drivers:** Hardcoded inputs for segment growth, margins, working capital days, tax rate, and share repurchases. 2. **Segment Build:** Revenue and Adjusted Operating Profit forecasted separately for U.S. Pharmaceutical, RxTS, Medical-Surgical Solutions, and International. 3. **Income Statement:** Consolidated view mirroring the 10-K. Must include a specific line for "LIFO inventory charge/credit" within Cost of Sales. 4. **Balance Sheet:** Standard assets and liabilities, with breakouts for LIFO reserve, Right-of-Use Assets, and Lease Liabilities. 5. **Cash Flow Statement:** Indirect method starting from Net Income, with a detailed working capital schedule (crucial for MCK). 6. **Debt & Interest Schedule:** Tranche-by-tranche debt build and commercial paper tracking. 7. **Working Capital Schedule:** DSO, DIO, DPO calculations driving the massive Receivables, Inventory, and Payables balances. 8. **EPS & Share Repurchase:** Detailed tracking of the $4.0B authorization, calculating basic and diluted shares (FY25 weighted average diluted shares: 128.1 million). 9. **SOTP Valuation:** DCF and EV/EBITDA multiples applied separately to the core distribution business, RxTS, and Medical-Surgical (to model the planned separation). ## Key Financial Relationships 1. `U.S. Pharmaceutical Revenue = Prior Year Revenue * (1 + Market Volume Growth + Specialty Mix Impact - Generic Deflation)` 2. `RxTS Revenue = Prior Year Revenue * (1 + Transaction Volume Growth + Technology Services Growth)` 3. `Consolidated Cost of Sales = Beginning Inventory + Purchases - Ending Inventory + LIFO Provision` 4. `Segment Adjusted Operating Profit = Segment Revenue * Segment Adjusted Operating Margin` 5. `Consolidated Gross Profit = Total Revenues - Total Cost of Sales` 6. `Accounts Receivable = (Total Revenue / 365) * DSO` 7. `Inventory = (Total Cost of Sales / 365) * DIO` 8. `Accounts Payable = (Total Cost of Sales / 365) * DPO` 9. `Free Cash Flow = Operating Cash Flow - Capital Expenditures` (FY25 FCF = $6.1B - $0.859B = $5.2B) 10. `Ending Diluted Shares = Beginning Shares - (Share Repurchase Spend / Average Share Price) + Stock-Based Comp Issuances` ## Cross-Sheet Dependencies * **Segment Build -> Income Statement:** The sum of the four segments' revenues feeds the consolidated top line. The sum of Segment Adjusted Operating Profits, minus corporate expenses and LIFO adjustments, feeds GAAP Operating Income. * **Income Statement -> Working Capital:** Revenue drives Accounts Receivable; COGS drives Inventory and Accounts Payable. * **Working Capital -> Cash Flow:** The net change in working capital is the largest swing factor in Operating Cash Flow. * **Cash Flow -> Debt/Interest (Circularity):** Free cash flow dictates the need for commercial paper borrowing or the capacity for share repurchases, which in turn impacts interest expense/income and EPS. ## Sign Convention * **Revenues and Assets:** Positive. * **Expenses (COGS, SG&A, Interest):** Entered as positive numbers in their specific schedules, but subtracted in the Income Statement totals. * **Cash Flow:** Inflows are positive (e.g., Net Income, Depreciation, increase in Payables). Outflows are negative (e.g., Capex, Dividends, Share Repurchases, increase in Receivables). * **LIFO Charge:** A LIFO *charge* (expense) increases COGS (reduces gross profit). A LIFO *credit* decreases COGS. ## Things Most Likely to Go Wrong 1. **LIFO Accounting Misunderstanding:** McKesson uses LIFO for its U.S. Pharma inventory. During inflationary periods, LIFO charges hit COGS. The model must explicitly forecast the LIFO provision, or gross margins will be misstated. 2. **Working Capital Scale:** Because revenue is $359B, a 1-day error in DSO or DPO swings cash flow by ~$1 billion. Working capital assumptions must be highly precise. 3. **Medical-Surgical Separation:** The model must allow for the pro-forma removal of the Medical-Surgical segment to analyze the post-spin entity, as announced in May 2025. 4. **Canadian Retail Divestiture:** Historical financials include Rexall/Well.ca. FY26 forecasts must exclude this revenue and account for the $667M remeasurement charge taken in FY25. 5. **Gross vs. Net Revenue:** McKesson acts as a principal for most distribution, recognizing gross revenue. However, certain agency/fee-based models in RxTS are recognized net. Do not apply standard distribution margins to RxTS. 6. **Share Repurchase Impact:** EPS growth (e.g., 20% in FY25) is heavily driven by the shrinking share count ($3.1B repurchased). Failing to model the $4.0B authorization will severely understate EPS. 7. **Adjusted vs. GAAP Metrics:** Management guides to *Adjusted* Earnings per Diluted Share ($36.75 - $37.55 for FY26). The model must bridge GAAP Net Income to Adjusted Net Income by adding back amortization of acquisition intangibles and restructuring charges. 8. **Venture Gains:** FY25 adjusted EPS included $0.57 of gains from McKesson Ventures. These are volatile and should generally be modeled at zero for future run-rate forecasting. ## Validation Checks 1. "Consolidated Gross Margin should be in the 3.5% - 4.5% range; flag if outside this band." 2. "Capex as % of revenue must remain below 0.5% (historically ~0.24%)." 3. "Free Cash Flow should closely track Operating Cash Flow minus ~$800M-$1B in Capex." 4. "U.S. Pharmaceutical revenue must account for >85% of total consolidated revenue." 5. "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period." 6. "Share count must decrease YoY if the $4.0B repurchase authorization is being utilized." 7. "RxTS Operating Margin should be significantly higher than U.S. Pharma Operating Margin (RxTS is a technology/services business)." 8. "Dividend payout ratio should reflect the $0.71 quarterly dividend against GAAP net income." ## Key Assumptions (Default Values) Defaults from the published workbook Assumptions sheet. These are scenario inputs, not reported results. | Assumption | Default Value | Unit | Rationale | |---|---|---|---| | U.S. Pharma Revenue Growth | 12.0 | % | Normalizing from FY25's 18% spike, reflecting steady specialty/GLP-1 growth | | RxTS Revenue Growth | 10.0 | % | Mid-point of recent 9-11% historical growth | | Med-Surg Revenue Growth | 1.0 | % | Matches FY25 actuals; segment is facing primary care headwinds | | International Revenue Growth | 2.0 | % | Conservative estimate post-Canadian retail divestiture | | Consolidated Gross Margin | 3.7 | % | Matches FY25 actuals ($13.3B on $359B) | | Total Operating Expenses | 8.9 | $B | Workbook base input; forecast operating expenses grow 11% annually | | Capex as % of Revenue | 0.24 | % | Based on FY25 actuals ($859M on $359B) | | Effective Tax Rate | 19.0 | % | Typical range for MCK post-international divestitures | | Annual Share Repurchases | 3.2 | $B | Based on management's raised target for FY25/FY26 | | Quarterly Dividend per Share | 0.71 | $ | Actual declared dividend as of July 2024 | | DSO (Days Sales Outstanding) | 25 | Days | Published workbook Assumptions sheet | | DIO (Days Inventory Outstanding) | 30 | Days | Published workbook Assumptions sheet | | DPO (Days Payable Outstanding) | 64 | Days | Published workbook Assumptions sheet | | WACC | 7.5 | % | Standard discount rate for a low-beta, stable healthcare distributor | | Terminal Growth Rate | 1.5 | % | Mature, GDP-linked distribution business | ## Data Sources & Benchmarks * **Filings:** SEC EDGAR (Form 10-K for FY2025 ended March 31, 2025). * **Investor Relations:** investor.mckesson.com for earnings presentations and the September 2025 Investor Day deck. * **Key Peers:** Cencora (COR), Cardinal Health (CAH). * **Industry Data:** IQVIA (for national prescription volume and specialty drug growth trends), CMS National Health Expenditure data. * **Consensus Estimates:** FactSet or Bloomberg for forward-looking Adjusted EPS estimates to benchmark against management's $36.75 - $37.55 FY26 guidance. ## Sources * [McKesson FY2025 Form 10-K, filed May 9, 2025](https://www.sec.gov/Archives/edgar/data/927653/000092765325000036/mck-20250331.htm). * [FY2025 earnings release and financial tables, May 8, 2025](https://www.sec.gov/Archives/edgar/data/927653/000092765325000034/mck_exhibit991x3312025.htm). * [SEC company facts](https://data.sec.gov/api/xbrl/companyfacts/CIK0000927653.json): annual periods matched by start/end dates, using filings through May 9, 2025. * [Published workbook](/company-models/MCK.xlsx): scenario assumptions, separate from reported financials. ## Frequently asked questions ### What is McKesson Corporation's primary business model? McKesson Corporation operates as a leading global healthcare services and information technology company, primarily distributing pharmaceuticals and medical supplies. Its business model is characterized as asset-light, high-volume, and low-margin, acting as a critical intermediary in the healthcare supply chain. ### How does McKesson generate revenue across its business segments? McKesson primarily generates revenue through its U.S. Pharmaceutical segment, which accounts for approximately 91% of its total revenue. Smaller contributions come from its International, Medical-Surgical Solutions, and Prescription Technology Solutions (RxTS) segments. ### What is McKesson's capital expenditure strategy, and how does it impact its financial model? McKesson maintains an extremely low capital expenditure as a percentage of revenue, typically around 0.2% to 0.3%. This capex is heavily skewed towards maintenance and IT/automation upgrades in its distribution centers, reflecting its asset-light distribution model. ### What is the primary purpose of the McKesson financial model available for download? The downloadable McKesson financial model is designed as a sum-of-the-parts (SOTP) equity valuation and scenario analysis tool. It specifically aims to evaluate the financial impact of the planned separation of the Medical-Surgical Solutions segment and the margin accretion from expanding Oncology and Biopharma platforms. ### How does McKesson's working capital profile affect its financial performance? McKesson operates with a highly efficient, often negative or near-zero net working capital profile. This is achieved by effectively using supplier payment terms to fund inventory, which positively impacts its cash flow dynamics. ### Can I download an Excel financial model for McKesson, and what is its forecast horizon? Yes, an Excel financial model for McKesson is available for download. This model provides a forecast horizon spanning from FY2026 through FY2030, offering a detailed look into future financial projections. [Interactive forecast calculator](https://finamodel.com/companies/mckesson/forecast)