Returns At Fraser and Neave (SGX:F99) Appear To Be Weighed Down

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after briefly looking over the numbers, we don't think Fraser and Neave (SGX:F99) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for Fraser and Neave:

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

0.038 = S$156m ÷ (S$4.9b - S$866m) (Based on the trailing twelve months to September 2021).

So, Fraser and Neave has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Food industry average of 12%.

View our latest analysis for Fraser and Neave

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fraser and Neave's ROCE against it's prior returns. If you're interested in investigating Fraser and Neave's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The returns on capital haven't changed much for Fraser and Neave in recent years. The company has consistently earned 3.8% for the last five years, and the capital employed within the business has risen 22% 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 Bottom Line

As we've seen above, Fraser and Neave's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 25% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Fraser and Neave has the makings of a multi-bagger.

One final note, you should learn about the 2 warning signs we've spotted with Fraser and Neave (including 1 which is a bit concerning) .

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.