Swiss Water Decaffeinated Coffee (TSE:SWP) Is Looking To Continue Growing Its Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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, Swiss Water Decaffeinated Coffee (TSE:SWP) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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 Swiss Water Decaffeinated Coffee is:

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

0.07 = CA$11m ÷ (CA$209m - CA$48m) (Based on the trailing twelve months to September 2024).

So, Swiss Water Decaffeinated Coffee has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 10%.

View our latest analysis for Swiss Water Decaffeinated Coffee

In the above chart we have measured Swiss Water Decaffeinated Coffee'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 Swiss Water Decaffeinated Coffee .

What Can We Tell From Swiss Water Decaffeinated Coffee's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.0%. The amount of capital employed has increased too, by 48%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Swiss Water Decaffeinated Coffee's ROCE

All in all, it's terrific to see that Swiss Water Decaffeinated Coffee is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 29% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 3 warning signs we've spotted with Swiss Water Decaffeinated Coffee (including 2 which make us uncomfortable) .

While Swiss Water Decaffeinated Coffee isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.