Here's What To Make Of Compañía Cervecerías Unidas' (SNSE:CCU) Decelerating Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. That's why when we briefly looked at Compañía Cervecerías Unidas' (SNSE:CCU) ROCE trend, we were pretty happy with what we saw.

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. To calculate this metric for Compañía Cervecerías Unidas, this is the formula:

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

0.15 = CL$304b ÷ (CL$2.8t - CL$680b) (Based on the trailing twelve months to September 2021).

Therefore, Compañía Cervecerías Unidas has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 12% generated by the Beverage industry.

See our latest analysis for Compañía Cervecerías Unidas

Above you can see how the current ROCE for Compañía Cervecerías Unidas 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 report for Compañía Cervecerías Unidas.

So How Is Compañía Cervecerías Unidas' ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 47% more capital into its operations. 15% is a pretty standard return, and it provides some comfort knowing that Compañía Cervecerías Unidas 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.

Our Take On Compañía Cervecerías Unidas' ROCE

To sum it up, Compañía Cervecerías Unidas has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 8.0% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

Compañía Cervecerías Unidas does have some risks though, and we've spotted 1 warning sign for Compañía Cervecerías Unidas that you might be interested in.

While Compañía Cervecerías Unidas 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.