Coca-Cola Europacific Partners (AMS:CCEP) Has More To Do To Multiply In Value Going Forward

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. In light of that, when we looked at Coca-Cola Europacific Partners (AMS:CCEP) and its ROCE trend, we weren't exactly thrilled.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Coca-Cola Europacific Partners, this is the formula:

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

0.086 = €2.0b ÷ (€30b - €7.4b) (Based on the trailing twelve months to July 2022).

Thus, Coca-Cola Europacific Partners has an ROCE of 8.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.4%.

Check out our latest analysis for Coca-Cola Europacific Partners

Above you can see how the current ROCE for Coca-Cola Europacific Partners 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 Coca-Cola Europacific Partners here for free.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Coca-Cola Europacific Partners. The company has consistently earned 8.6% for the last five years, and the capital employed within the business has risen 56% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

In summary, Coca-Cola Europacific Partners has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 98% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Coca-Cola Europacific Partners does have some risks though, and we've spotted 2 warning signs for Coca-Cola Europacific Partners that you might be interested in.

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.