Investors Could Be Concerned With Compañía Cervecerías Unidas' (SNSE:CCU) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Compañía Cervecerías Unidas (SNSE:CCU) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Compañía Cervecerías Unidas:

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

0.077 = CL$218b ÷ (CL$3.4t - CL$593b) (Based on the trailing twelve months to June 2023).

Therefore, Compañía Cervecerías Unidas has an ROCE of 7.7%. In absolute terms, that's a low return but it's around the Beverage industry average of 6.4%.

Check out 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, you can check out the forecasts from the analysts covering Compañía Cervecerías Unidas here for free.

What Does the ROCE Trend For Compañía Cervecerías Unidas Tell Us?

When we looked at the ROCE trend at Compañía Cervecerías Unidas, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 7.7% from 16% five years ago. However it looks like Compañía Cervecerías Unidas might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

The Bottom Line On Compañía Cervecerías Unidas' ROCE

In summary, Compañía Cervecerías Unidas is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Compañía Cervecerías Unidas has the makings of a multi-bagger.

If you'd like to know more about Compañía Cervecerías Unidas, we've spotted 2 warning signs, and 1 of them can't be ignored.

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.