Returns On Capital At Coca-Cola Europacific Partners (AMS:CCEP) Have Hit The Brakes

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Coca-Cola Europacific Partners (AMS:CCEP), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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)

0.069 = €1.6b ÷ (€29b - €6.1b) (Based on the trailing twelve months to December 2021).

Therefore, Coca-Cola Europacific Partners has an ROCE of 6.9%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 9.9%.

Check out our latest analysis for Coca-Cola Europacific Partners

In the above chart we have measured Coca-Cola Europacific Partners' 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 report for Coca-Cola Europacific Partners.

How Are Returns Trending?

In terms of Coca-Cola Europacific Partners' historical ROCE trend, it doesn't exactly demand attention. The company has employed 55% more capital in the last five years, and the returns on that capital have remained stable at 6.9%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Coca-Cola Europacific Partners' ROCE

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 49% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know more about Coca-Cola Europacific Partners, we've spotted 2 warning signs, and 1 of them is significant.

While Coca-Cola Europacific Partners 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.

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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.