Fraser & Neave Holdings Bhd (KLSE:F&N) Has More To Do To Multiply In Value Going Forward

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Fraser & Neave Holdings Bhd's (KLSE:F&N) trend of ROCE, we liked what we saw.

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

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 Fraser & Neave Holdings Bhd is:

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

0.16 = RM710m ÷ (RM5.5b - RM1.1b) (Based on the trailing twelve months to September 2024).

Thus, Fraser & Neave Holdings Bhd has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Beverage industry average of 17%.

Check out our latest analysis for Fraser & Neave Holdings Bhd

Above you can see how the current ROCE for Fraser & Neave Holdings Bhd 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 Fraser & Neave Holdings Bhd for free.

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 61% in that time. 16% is a pretty standard return, and it provides some comfort knowing that Fraser & Neave Holdings Bhd 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.

The Key Takeaway

In the end, Fraser & Neave Holdings Bhd has proven its ability to adequately reinvest capital at good rates of return. Yet over the last five years the stock has declined 12%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

While Fraser & Neave Holdings Bhd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for F&N on our platform.

While Fraser & Neave Holdings Bhd 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.