Returns On Capital Are Showing Encouraging Signs At Restaurant Brands International Limited Partnership (TSE:QSP.UN)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Restaurant Brands International Limited Partnership's (TSE:QSP.UN) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. 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)

0.097 = US$2.0b ÷ (US$23b - US$1.9b) (Based on the trailing twelve months to September 2022).

Therefore, Restaurant Brands International Limited Partnership has an ROCE of 9.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.6%.

See our latest analysis for Restaurant Brands International Limited Partnership

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.

So How Is Restaurant Brands International Limited Partnership's ROCE Trending?

Restaurant Brands International Limited Partnership's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 22% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Restaurant Brands International Limited Partnership's ROCE

As discussed above, Restaurant Brands International Limited Partnership appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 47% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about Restaurant Brands International Limited Partnership, we've spotted 4 warning signs, and 3 of them are a bit concerning.

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.