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What trends should we look for if we want to identify stocks that can multiply in value over the long term? Typically, we will want to notice a growth trend to return to on capital employed (ROCE) and at the same time, a based capital employed. This shows us that it is a compounding machine, capable of continuously reinvesting its profits back into the business and generating higher returns. So on that note, Consolidated Coca-Cola (NASDAQ:COKE) looks quite promising when it comes to its capital return trends.
Return on capital employed (ROCE): what is it?
If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. Analysts use this formula to calculate it for Coca-Cola Consolidated:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.17 = $449 million ÷ ($3.4 billion – $768 million) (Based on the last twelve months to October 2021).
Thereby, Coca-Cola Consolidated has a ROCE of 17%. In absolute terms, that’s a decent return, but compared to the beverage industry average of 12%, it’s much better.
Above, you can see how Coca-Cola Consolidated’s current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you want to see what analysts predict for the future, you should check out our free report for Coca-Cola Consolidated.
What the ROCE trend can tell us
Investors would be thrilled with what’s happening at Coca-Cola Consolidated. Over the past five years, return on capital employed has increased substantially to 17%. The amount of capital employed also increased by 46%. So we’re very inspired by what we’re seeing at Coca-Cola Consolidated with its ability to reinvest capital profitably.
The essential
In summary, it’s great to see that Coca-Cola Consolidated can accumulate returns by constantly reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought-after multi-baggers. And since the stock has performed exceptionally well over the past five years, these trends are taken into account by investors. So given that the stock has proven to have some promising trends, it’s worth researching the company further to see if those trends are likely to persist.
Like most businesses, Coca-Cola Consolidated involves certain risks, and we have found 3 warning signs of which you should be aware.
If you want to look for strong companies with excellent earnings, check out this free list of companies with strong balance sheets and impressive returns on equity.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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