Investors Shouldn't Overlook The Favourable Returns On Capital At Kweichow Moutai (SHSE:600519)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Kweichow Moutai (SHSE:600519) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding 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. The formula for this calculation on Kweichow Moutai is:

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

0.42 = CN¥103b ÷ (CN¥286b - CN¥37b) (Based on the trailing twelve months to March 2024).

So, Kweichow Moutai has an ROCE of 42%. In absolute terms that's a great return and it's even better than the Beverage industry average of 17%.

Check out our latest analysis for Kweichow Moutai

Above you can see how the current ROCE for Kweichow Moutai compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Kweichow Moutai .

What Does the ROCE Trend For Kweichow Moutai Tell Us?

In terms of Kweichow Moutai's history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 42% and the business has deployed 92% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Kweichow Moutai can keep this up, we'd be very optimistic about its future.

In Conclusion...

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

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

Kweichow Moutai 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. 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.