What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Coca-Cola Consolidated (NASDAQ:COKE) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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 = US$449m ÷ (US$3.4b - US$768m) (Based on the trailing twelve months to October 2021).
Thus, Coca-Cola Consolidated has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Beverage industry average of 12% it's much better.
Above you can see how the current ROCE for Coca-Cola Consolidated 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 Coca-Cola Consolidated.
What The Trend Of ROCE Can Tell Us
Investors would be pleased with what's happening at Coca-Cola Consolidated. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 46%. So we're very much inspired by what we're seeing at Coca-Cola Consolidated thanks to its ability to profitably reinvest capital.
The Bottom Line
In summary, it's great to see that Coca-Cola Consolidated can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
Like most companies, Coca-Cola Consolidated does come with some risks, and we've found 3 warning signs that you should be aware of.
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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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.
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