Shareholders Would Enjoy A Repeat Of Corby Spirit and Wine's (TSE:CSW.A) Recent Growth In Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Corby Spirit and Wine's (TSE:CSW.A) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Corby Spirit and Wine:

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

0.21 = CA$43m ÷ (CA$240m - CA$38m) (Based on the trailing twelve months to March 2021).

Therefore, Corby Spirit and Wine has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Beverage industry average of 14%.

See our latest analysis for Corby Spirit and Wine

Historical performance is a great place to start when researching a stock so above you can see the gauge for Corby Spirit and Wine's ROCE against it's prior returns. If you're interested in investigating Corby Spirit and Wine's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Corby Spirit and Wine has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 32% over the last five years. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In Conclusion...

In summary, we're delighted to see that Corby Spirit and Wine has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 14% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing to note, we've identified 1 warning sign with Corby Spirit and Wine and understanding this should be part of your investment process.

Corby Spirit and Wine is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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This article by Simply Wall St is general in nature. 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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