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Comparing Wendy’s Returns with Its Peers

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Major fast food chains

According to Technomic’s estimates in 2014, limited-service restaurants account for almost 55% of the total sales in the US restaurant industry.

Apart from their main competitors in the fast food restaurant business—like McDonald’s (MCD)—Wendy’s (WEN) faces competition from fast-casual restaurants—like Chipotle (CMG) and Panera Bread (PNRA). The fast-casual restaurant model combines the concepts of full-service restaurants as well as limited-service restaurants.

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EBITDA margin comparison

The EBITDA (earnings before interest, tax, depreciation, and amortization) margin measures the company’s overall operating cash profitability.

According to the EBITDA margins for 2014, Burger King (QSR) was the most profitable at 46%. It was followed by McDonald’s at 35%, Popeyes at 31%, and Chipotle at 20%.

To learn more about the restaurant industry in the US, read An in-depth overview of the US restaurant industry.

Return on equity

Popeyes (PLKI) gives the best return to its shareholders at 61%. Yum! Brands (YUM) comes in second. Comparing Wendy’s returns with its competition, Wendy’s is at 7%. It lagged behind most of the other restaurants. Return on equity, or ROE, is the net income to shareholders. It’s expressed as a the percentage of shareholders’ equity.

Return on asset 

In terms of efficiency in asset utilization, Chipotle (CMG) is the most efficient. Its return on assets, or ROA, was 19%. Wendy’s came in last. Its ROA was 3%. ROA is the net income expressed as a percentage of total assets. It measures the company’s efficiency in utilizing its assets.

Investors can access companies in the fast food restaurant industry through ETFs like the Consumer Discretionary Select Sector SPDR ETF (XLY). XLY holds 1.50% of Yum! Brands’ (YUM) stock.

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