Returns On Capital At Restaurant Brands International (NYSE:QSR) Have Stalled

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Restaurant Brands International (NYSE:QSR), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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:

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

0.10 = US$2.1b ÷ (US$23b - US$2.1b) (Based on the trailing twelve months to September 2023).

Thus, Restaurant Brands International has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 9.1% generated by the Hospitality industry.

View our latest analysis for Restaurant Brands International

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 to see what analysts are forecasting going forward, you should check out our free report for Restaurant Brands International.

So How Is Restaurant Brands International's ROCE Trending?

There hasn't been much to report for Restaurant Brands International's returns and its level of capital employed because both metrics have been steady for the past five years. 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. So don't be surprised if Restaurant Brands International doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Restaurant Brands International has been paying out a decent 56% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

What We Can Learn From Restaurant Brands International's ROCE

In summary, Restaurant Brands International isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 59% 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.

Restaurant Brands International does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.