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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over China Resources Beer (Holdings)'s (HKG:291) trend of ROCE, we liked what we saw.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for China Resources Beer (Holdings), this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = CN¥4.8b ÷ (CN¥72b - CN¥25b) (Based on the trailing twelve months to June 2024).
Thus, China Resources Beer (Holdings) has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Beverage industry average of 12%.
Check out our latest analysis for China Resources Beer (Holdings)
Above you can see how the current ROCE for China Resources Beer (Holdings) 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 analyst report for China Resources Beer (Holdings) .
What Can We Tell From China Resources Beer (Holdings)'s ROCE Trend?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 102% in that time. 10% is a pretty standard return, and it provides some comfort knowing that China Resources Beer (Holdings) has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 35% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.
What We Can Learn From China Resources Beer (Holdings)'s ROCE
In the end, China Resources Beer (Holdings) has proven its ability to adequately reinvest capital at good rates of return. Yet over the last five years the stock has declined 34%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
If you're still interested in China Resources Beer (Holdings) it's worth checking out our FREE intrinsic value approximation for 291 to see if it's trading at an attractive price in other respects.
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.