Slowing Rates Of Return At Heineken (AMS:HEIA) Leave Little Room For Excitement

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Although, when we looked at Heineken (AMS:HEIA), it didn't seem to tick all of these boxes.

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 Heineken, this is the formula:

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

0.087 = €3.2b ÷ (€49b - €12b) (Based on the trailing twelve months to December 2021).

So, Heineken has an ROCE of 8.7%. On its own, that's a low figure but it's around the 9.9% average generated by the Beverage industry.

Check out our latest analysis for Heineken

Above you can see how the current ROCE for Heineken compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Heineken.

So How Is Heineken's ROCE Trending?

The returns on capital haven't changed much for Heineken in recent years. The company has employed 27% more capital in the last five years, and the returns on that capital have remained stable at 8.7%. 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 Bottom Line On Heineken's ROCE

Long story short, while Heineken has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 24% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a separate note, we've found 2 warning signs for Heineken you'll probably want to know about.

While Heineken 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.