Stock Analysis

Investors Will Want Restaurant Brands International's (NYSE:QSR) Growth In ROCE To Persist

  •  Updated
NYSE:QSR
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There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Speaking of which, we noticed some great changes in Restaurant Brands International's (NYSE:QSR) 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, this is the formula:

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

0.095 = US$2.0b ÷ (US$23b - US$1.8b) (Based on the trailing twelve months to June 2022).

Thus, Restaurant Brands International has an ROCE of 9.5%. Even though it's in line with the industry average of 10%, it's still a low return by itself.

Check out our latest analysis for Restaurant Brands International

roce
NYSE:QSR Return on Capital Employed August 30th 2022

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, you can check out the forecasts from the analysts covering Restaurant Brands International here for free.

What Does the ROCE Trend For Restaurant Brands International Tell Us?

Restaurant Brands International's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 21% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

In summary, we're delighted to see that Restaurant Brands International has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 14% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 2 warning signs we've spotted with Restaurant Brands International (including 1 which shouldn't be ignored) .

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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About NYSE:QSR

Restaurant Brands International

Restaurant Brands International Inc. operates as quick service restaurant company in Canada and internationally.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth2
Past Performance4
Financial Health2
Dividends3

Read more about these checks in the individual report sections or in our analysis model.

Proven track record second-rate dividend payer.