The Returns At China Resources Beer (Holdings) (HKG:291) Aren't Growing

Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at China Resources Beer (Holdings)'s (HKG:291) ROCE trend, we were pretty happy with what we saw.

What Is 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. To calculate this metric for China Resources Beer (Holdings), this is the formula:

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

0.10 = CN¥4.8b ÷ (CN¥72b - CN¥25b) (Based on the trailing twelve months to June 2024).

Therefore, China Resources Beer (Holdings) has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 12% generated by the Beverage industry.

View our latest analysis for China Resources Beer (Holdings)

In the above chart we have measured China Resources Beer (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 Beer (Holdings) .

So How Is China Resources Beer (Holdings)'s ROCE Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 10% and the business has deployed 102% more capital into its operations. Since 10% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, China Resources Beer (Holdings) has done well to reduce current liabilities to 35% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

The main thing to remember is that China Resources Beer (Holdings) has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 25% over the last five years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

China Resources Beer (Holdings) could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 291 on our platform quite valuable.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.