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

By
Simply Wall St
Published
October 02, 2021
TSX:QSP.UN
Source: Shutterstock

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing 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?

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. To calculate this metric for Restaurant Brands International Limited Partnership, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.085 = US$1.8b ÷ (US$23b - US$1.6b) (Based on the trailing twelve months to June 2021).

Thus, Restaurant Brands International Limited Partnership has an ROCE of 8.5%. Even though it's in line with the industry average of 7.6%, it's still a low return by itself.

View our latest analysis for Restaurant Brands International Limited Partnership

roce
TSX:QSP.UN Return on Capital Employed October 3rd 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Restaurant Brands International Limited Partnership's ROCE against it's prior returns. 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 The Trend Of ROCE Can Tell Us

In terms of Restaurant Brands International Limited Partnership's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 8.5% and the business has deployed 20% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

As we've seen above, Restaurant Brands International Limited Partnership's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 55% 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.

On a final note, we found 2 warning signs for Restaurant Brands International Limited Partnership (1 can't be ignored) you should be aware of.

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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