Returns On Capital At Compañía Cervecerías Unidas (SNSE:CCU) Have Stalled

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Compañía Cervecerías Unidas' (SNSE:CCU) ROCE trend, we were pretty happy with what we saw.

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)

0.13 = CL$328b ÷ (CL$3.3t - CL$820b) (Based on the trailing twelve months to June 2022).

So, Compañía Cervecerías Unidas has an ROCE of 13%. That's a relatively normal return on capital, and it's around 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.

What Can We Tell From Compañía Cervecerías Unidas' ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has employed 72% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

The Bottom Line On Compañía Cervecerías Unidas' ROCE

The main thing to remember is that Compañía Cervecerías Unidas has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 24% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

On a final note, we've found 1 warning sign for Compañía Cervecerías Unidas that we think you should be aware of.

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.