If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, we've noticed some promising trends at Coca-Cola FEMSA. de (NYSE:KOF) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Coca-Cola FEMSA. de is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = Mex$35b ÷ (Mex$288b - Mex$66b) (Based on the trailing twelve months to June 2024).
Thus, Coca-Cola FEMSA. de has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Beverage industry average of 17%.
In the above chart we have measured Coca-Cola FEMSA. de'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 Coca-Cola FEMSA. de .
What Can We Tell From Coca-Cola FEMSA. de's ROCE Trend?
Coca-Cola FEMSA. de is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 27% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
Our Take On Coca-Cola FEMSA. de's ROCE
To sum it up, Coca-Cola FEMSA. de is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 89% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for KOF that compares the share price and estimated value.
While Coca-Cola FEMSA. de may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
