Returns Are Gaining Momentum At Cooks Coffee (NZSE:CCC)

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Cooks Coffee's (NZSE:CCC) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Cooks Coffee, this is the formula:

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

0.035 = NZ$949k ÷ (NZ$36m - NZ$9.4m) (Based on the trailing twelve months to March 2025).

Thus, Cooks Coffee has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 7.9%.

Check out our latest analysis for Cooks Coffee

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Cooks Coffee's past further, check out this free graph covering Cooks Coffee's past earnings, revenue and cash flow.

So How Is Cooks Coffee's ROCE Trending?

Cooks Coffee has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 3.5% which is a sight for sore eyes. In addition to that, Cooks Coffee is employing 65% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 26%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Cooks Coffee's ROCE

Long story short, we're delighted to see that Cooks Coffee's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 67% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 4 warning signs we've spotted with Cooks Coffee (including 3 which are significant) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.