If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Restaurant Brands New Zealand (NZSE:RBD), it didn't seem to tick all of these boxes.
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Restaurant Brands New Zealand, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.077 = NZ$102m ÷ (NZ$1.5b - NZ$178m) (Based on the trailing twelve months to December 2024).
So, Restaurant Brands New Zealand has an ROCE of 7.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.9%.
View our latest analysis for Restaurant Brands New Zealand
In the above chart we have measured Restaurant Brands New Zealand's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Restaurant Brands New Zealand .
In terms of Restaurant Brands New Zealand's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 12%, but since then they've fallen to 7.7%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
On a side note, Restaurant Brands New Zealand has done well to pay down its current liabilities to 12% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
In summary, Restaurant Brands New Zealand is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last five years, the stock has given away 47% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
On a final note, we've found 1 warning sign for Restaurant Brands New Zealand that we think you should be aware of.
While Restaurant Brands New Zealand 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.
免責聲明:投資有風險,本文並非投資建議,以上內容不應被視為任何金融產品的購買或出售要約、建議或邀請,作者或其他用戶的任何相關討論、評論或帖子也不應被視為此類內容。本文僅供一般參考,不考慮您的個人投資目標、財務狀況或需求。TTM對信息的準確性和完整性不承擔任何責任或保證,投資者應自行研究並在投資前尋求專業建議。