Returns On Capital Signal Tricky Times Ahead For China Resources Beverage (Holdings) (HKG:2460)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Having said that, from a first glance at China Resources Beverage (Holdings) (HKG:2460) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Return On Capital Employed (ROCE): What Is It?

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 China Resources Beverage (Holdings) is:

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

0.11 = CN¥1.3b ÷ (CN¥21b - CN¥8.7b) (Based on the trailing twelve months to June 2025).

Therefore, China Resources Beverage (Holdings) has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

See our latest analysis for China Resources Beverage (Holdings)

In the above chart we have measured China Resources Beverage (Holdings)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for China Resources Beverage (Holdings) .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at China Resources Beverage (Holdings), we didn't gain much confidence. Around three years ago the returns on capital were 18%, but since then they've fallen to 11%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

On a separate but related note, it's important to know that China Resources Beverage (Holdings) has a current liabilities to total assets ratio of 42%, which we'd consider pretty high. 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

From the above analysis, we find it rather worrisome that returns on capital and sales for China Resources Beverage (Holdings) have fallen, meanwhile the business is employing more capital than it was three years ago. It should come as no surprise then that the stock has fallen 27% over the last year, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

China Resources Beverage (Holdings) could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 2460 on our platform quite valuable.

While China Resources Beverage (Holdings) 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.