Shareholders Would Enjoy A Repeat Of Eastroc Beverage(Group)'s (SHSE:605499) Recent Growth In Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Eastroc Beverage(Group)'s (SHSE:605499) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.41 = CN¥3.1b ÷ (CN¥19b - CN¥11b) (Based on the trailing twelve months to June 2024).

Thus, Eastroc Beverage(Group) has an ROCE of 41%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

See our latest analysis for Eastroc Beverage(Group)

In the above chart we have measured Eastroc Beverage(Group)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Eastroc Beverage(Group) for free.

The Trend Of ROCE

Eastroc Beverage(Group) is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 41%. 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 394%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 60% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line

To sum it up, Eastroc Beverage(Group) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 39% return over the last three years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Eastroc Beverage(Group), you might be interested to know about the 1 warning sign that our analysis has discovered.

Eastroc Beverage(Group) 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.