Restaurant Brands International Limited Partnership's (TSE:QSP.UN) Returns Have Hit A Wall
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Restaurant Brands International Limited Partnership (TSE:QSP.UN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Restaurant Brands International Limited Partnership is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.099 = US$2.0b ÷ (US$23b - US$1.9b) (Based on the trailing twelve months to March 2023).
Thus, Restaurant Brands International Limited Partnership has an ROCE of 9.9%. Even though it's in line with the industry average of 10%, it's still a low return by itself.
View our latest analysis for Restaurant Brands International Limited Partnership
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Restaurant Brands International Limited Partnership, check out these free graphs here.
What Can We Tell From Restaurant Brands International Limited Partnership's ROCE Trend?
There hasn't been much to report for Restaurant Brands International Limited Partnership's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Restaurant Brands International Limited Partnership doesn't end up being a multi-bagger in a few years time.
Our Take On Restaurant Brands International Limited Partnership's ROCE
In summary, Restaurant Brands International Limited Partnership isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 57% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.
One more thing: We've identified 4 warning signs with Restaurant Brands International Limited Partnership (at least 3 which are concerning) , and understanding them would certainly be useful.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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