Restaurant Brands International Limited Partnership (TSE:QSP.UN) Has More To Do To Multiply In Value Going Forward

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Restaurant Brands International Limited Partnership (TSE:QSP.UN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.076 = US$1.6b ÷ (US$23b - US$1.6b) (Based on the trailing twelve months to March 2021).

So, Restaurant Brands International Limited Partnership has an ROCE of 7.6%. Even though it's in line with the industry average of 7.9%, it's still a low return by itself.

See 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?

Over the past five years, Restaurant Brands International Limited Partnership's ROCE and capital employed have both remained mostly flat. 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. With that in mind, unless investment picks up again in the future, we wouldn't expect Restaurant Brands International Limited Partnership to be a multi-bagger going forward.

The Bottom Line

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 81% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to know some of the risks facing Restaurant Brands International Limited Partnership we've found 2 warning signs (1 can't be ignored!) that you should be aware of before investing here.

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. 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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