There's Been No Shortage Of Growth Recently For Fraser and Neave's (SGX:F99) Returns On Capital

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Fraser and Neave (SGX:F99) looks quite promising in regards to its trends of return on capital.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Fraser and Neave, this is the formula:

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

0.047 = S$205m ÷ (S$5.1b - S$782m) (Based on the trailing twelve months to March 2024).

Therefore, Fraser and Neave has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.6%.

See our latest analysis for Fraser and Neave

Above you can see how the current ROCE for Fraser and Neave 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 Fraser and Neave for free.

The Trend Of ROCE

While there are companies with higher returns on capital out there, we still find the trend at Fraser and Neave promising. The figures show that over the last five years, ROCE has grown 29% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Fraser and Neave's ROCE

To sum it up, Fraser and Neave is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 26% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 1 warning sign for Fraser and Neave you'll probably want to know about.

While Fraser and Neave isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.