The Returns At Restaurant Brands International Limited Partnership (TSE:QSP.UN) Provide Us With Signs Of What's To Come

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. 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.

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. Analysts use this formula to calculate it for Restaurant Brands International Limited Partnership:

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

0.082 = US$1.7b ÷ (US$23b - US$1.6b) (Based on the trailing twelve months to September 2020).

So, Restaurant Brands International Limited Partnership has an ROCE of 8.2%. Even though it's in line with the industry average of 8.4%, 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'd like to look at how Restaurant Brands International Limited Partnership has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

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

Over the past five years, Restaurant Brands International Limited Partnership's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. 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 a nutshell, Restaurant Brands International Limited Partnership has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has gained an impressive 86% 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 2 warning signs with Restaurant Brands International Limited Partnership (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

While Restaurant Brands International Limited Partnership isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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