Investors Will Want Coca-Cola Consolidated's (NASDAQ:COKE) Growth In ROCE To Persist

By
Simply Wall St
Published
April 11, 2022
NasdaqGS:COKE
Source: Shutterstock

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Coca-Cola Consolidated's (NASDAQ:COKE) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Coca-Cola Consolidated is:

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

0.17 = US$443m ÷ (US$3.4b - US$835m) (Based on the trailing twelve months to December 2021).

Therefore, Coca-Cola Consolidated has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Beverage industry average of 7.1% it's much better.

See our latest analysis for Coca-Cola Consolidated

roce
NasdaqGS:COKE Return on Capital Employed April 11th 2022

Above you can see how the current ROCE for Coca-Cola Consolidated 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 Coca-Cola Consolidated.

What The Trend Of ROCE Can Tell Us

Coca-Cola Consolidated is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 31% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Coca-Cola Consolidated's ROCE

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 146% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 3 warning signs facing Coca-Cola Consolidated that you might find interesting.

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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