We Like These Underlying Return On Capital Trends At San Miguel Brewery Hong Kong (HKG:236)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at San Miguel Brewery Hong Kong (HKG:236) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on San Miguel Brewery Hong Kong is:

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

0.039 = HK$22m ÷ (HK$721m - HK$145m) (Based on the trailing twelve months to December 2021).

So, San Miguel Brewery Hong Kong has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Beverage industry average of 10%.

Check out our latest analysis for San Miguel Brewery Hong Kong

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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.

The Trend Of ROCE

While the ROCE is still rather low for San Miguel Brewery Hong Kong, we're glad to see it heading in the right direction. We found that the returns on capital employed over the last five years have risen by 200%. The company is now earning HK$0.04 per dollar of capital employed. In regards to capital employed, San Miguel Brewery Hong Kong appears to been achieving more with less, since the business is using 23% less capital to run its operation. San Miguel Brewery Hong Kong may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Key Takeaway

In the end, San Miguel Brewery Hong Kong has proven it's capital allocation skills are good with those higher returns from less amount of capital. And since the stock has fallen 31% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

San Miguel Brewery Hong Kong does have some risks though, and we've spotted 1 warning sign for San Miguel Brewery Hong Kong that you might be interested in.

While San Miguel Brewery Hong Kong 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.