Returns On Capital At Fraser & Neave Holdings Bhd (KLSE:F&N) Have Hit The Brakes

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Fraser & Neave Holdings Bhd's (KLSE:F&N) ROCE trend, we were pretty happy with 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. Analysts use this formula to calculate it for Fraser & Neave Holdings Bhd:

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

0.13 = RM392m ÷ (RM3.9b - RM859m) (Based on the trailing twelve months to June 2022).

Therefore, Fraser & Neave Holdings Bhd has an ROCE of 13%. In isolation, that's a pretty standard return but against the Beverage industry average of 17%, it's not as good.

See our latest analysis for Fraser & Neave Holdings Bhd

In the above chart we have measured Fraser & Neave Holdings Bhd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Fraser & Neave Holdings Bhd here for free.

What Does the ROCE Trend For Fraser & Neave Holdings Bhd Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 22% in that time. 13% is a pretty standard return, and it provides some comfort knowing that Fraser & Neave Holdings Bhd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Fraser & Neave Holdings Bhd's ROCE

The main thing to remember is that Fraser & Neave Holdings Bhd has proven its ability to continually reinvest at respectable rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last five years. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you'd like to know about the risks facing Fraser & Neave Holdings Bhd, we've discovered 1 warning sign that you should be aware of.

While Fraser & Neave Holdings Bhd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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

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.