Investors Shouldn't Overlook Eastroc Beverage(Group)'s (SHSE:605499) Impressive Returns On Capital

There are a few key trends to look for if we want to identify the next 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. With that in mind, the ROCE of Eastroc Beverage(Group) (SHSE:605499) looks great, so lets see what the trend 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 Eastroc Beverage(Group) is:

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

0.34 = CN¥2.5b ÷ (CN¥16b - CN¥8.4b) (Based on the trailing twelve months to March 2024).

So, Eastroc Beverage(Group) has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Beverage industry average of 17%.

See our latest analysis for Eastroc Beverage(Group)

Above you can see how the current ROCE for Eastroc Beverage(Group) 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 analyst report for Eastroc Beverage(Group) .

What Can We Tell From Eastroc Beverage(Group)'s ROCE Trend?

Eastroc Beverage(Group) is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 34%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 456%. So we're very much inspired by what we're seeing at Eastroc Beverage(Group) thanks to its ability to profitably reinvest capital.

On a side note, Eastroc Beverage(Group)'s current liabilities are still rather high at 53% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

All in all, it's terrific to see that Eastroc Beverage(Group) is reaping the rewards from prior investments and is growing its capital base. And with a respectable 35% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Eastroc Beverage(Group) that you might find interesting.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.