Suntory Beverage & Food (TSE:2587) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Suntory Beverage & Food's (TSE:2587) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Suntory Beverage & Food, this is the formula:

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

0.11 = JP¥153b ÷ (JP¥2.0t - JP¥528b) (Based on the trailing twelve months to March 2024).

Therefore, Suntory Beverage & Food has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Beverage industry average of 6.4% it's much better.

Check out our latest analysis for Suntory Beverage & Food

Above you can see how the current ROCE for Suntory Beverage & Food compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Suntory Beverage & Food for free.

How Are Returns 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 11% and the business has deployed 33% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Suntory Beverage & Food has consistently earned this amount. 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.

Our Take On Suntory Beverage & Food's ROCE

The main thing to remember is that Suntory Beverage & Food has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 40% return to shareholders who held over that period. So to determine if Suntory Beverage & Food is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you're still interested in Suntory Beverage & Food it's worth checking out our FREE intrinsic value approximation for 2587 to see if it's trading at an attractive price in other respects.

While Suntory Beverage & Food 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com