Coca-Cola Consolidated (NASDAQ:COKE) Is Achieving High Returns On Its Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. And in light of that, the trends we're seeing at Coca-Cola Consolidated's (NASDAQ:COKE) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Coca-Cola Consolidated:

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

0.25 = US$824m ÷ (US$4.1b - US$908m) (Based on the trailing twelve months to September 2023).

Therefore, Coca-Cola Consolidated has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Beverage industry average of 15%.

See our latest analysis for Coca-Cola Consolidated

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 Coca-Cola Consolidated's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Coca-Cola Consolidated's ROCE Trending?

The trends we've noticed at Coca-Cola Consolidated are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 25%. Basically the business is earning more per dollar of capital invested and in addition to that, 29% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

To sum it up, Coca-Cola Consolidated has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 242% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Coca-Cola Consolidated can keep these trends up, it could have a bright future ahead.

Coca-Cola Consolidated does have some risks though, and we've spotted 1 warning sign for Coca-Cola Consolidated that you might be interested in.

Coca-Cola Consolidated is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.