There's Been No Shortage Of Growth Recently For San Miguel Brewery Hong Kong's (HKG:236) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. So on that note, San Miguel Brewery Hong Kong (HKG:236) looks quite promising in regards to its trends of return on capital.

Understanding 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. To calculate this metric for San Miguel Brewery Hong Kong, this is the formula:

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

0.042 = HK$25m ÷ (HK$696m - HK$118m) (Based on the trailing twelve months to June 2022).

So, San Miguel Brewery Hong Kong has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 9.7%.

See our latest analysis for San Miguel Brewery Hong Kong

Historical performance is a great place to start when researching a stock so above you can see the gauge for San Miguel Brewery Hong Kong's ROCE against it's prior returns. If you're interested in investigating San Miguel Brewery Hong Kong's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

While there are companies with higher returns on capital out there, we still find the trend at San Miguel Brewery Hong Kong promising. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 272% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

To bring it all together, San Miguel Brewery Hong Kong has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 38% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching San Miguel Brewery Hong Kong, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.