Investors Met With Slowing Returns on Capital At Restaurant Brands International (NYSE:QSR)
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Restaurant Brands International (NYSE:QSR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Restaurant Brands International is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.098 = US$2.0b ÷ (US$23b - US$2.1b) (Based on the trailing twelve months to December 2022).
Thus, Restaurant Brands International has an ROCE of 9.8%. Even though it's in line with the industry average of 9.8%, it's still a low return by itself.
See our latest analysis for Restaurant Brands International
Above you can see how the current ROCE for Restaurant Brands International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Restaurant Brands International.
What Can We Tell From Restaurant Brands International's ROCE Trend?
There hasn't been much to report for Restaurant Brands International's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Restaurant Brands International doesn't end up being a multi-bagger in a few years time. That being the case, it makes sense that Restaurant Brands International has been paying out 66% of its earnings to its shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.
What We Can Learn From Restaurant Brands International's ROCE
In summary, Restaurant Brands International isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 32% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
Restaurant Brands International does have some risks, we noticed 3 warning signs (and 1 which can't be ignored) we think you should know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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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