Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Boston Beer Company (NYSE:SAM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Boston Beer Company is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.13 = US$151m ÷ (US$1.4b - US$211m) (Based on the trailing twelve months to March 2024).

Therefore, Boston Beer Company has an ROCE of 13%. In absolute terms, that's a pretty standard return but compared to the Beverage industry average it falls behind.

View our latest analysis for Boston Beer Company

In the above chart we have measured Boston Beer Company'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 Boston Beer Company .

What Does the ROCE Trend For Boston Beer Company Tell Us?

On the surface, the trend of ROCE at Boston Beer Company doesn't inspire confidence. Around five years ago the returns on capital were 24%, but since then they've fallen to 13%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

Our Take On Boston Beer Company's ROCE

To conclude, we've found that Boston Beer Company is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 18% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Boston Beer Company has the makings of a multi-bagger.

If you're still interested in Boston Beer Company it's worth checking out our FREE intrinsic value approximation for SAM 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.