Investors Shouldn't Overlook The Favourable Returns On Capital At Monster Beverage (NASDAQ:MNST)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Monster Beverage's (NASDAQ:MNST) trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Monster Beverage, this is the formula:

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

0.30 = US$2.1b ÷ (US$8.1b - US$1.2b) (Based on the trailing twelve months to June 2024).

So, Monster Beverage has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

View our latest analysis for Monster Beverage

Above you can see how the current ROCE for Monster Beverage 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 analyst report for Monster Beverage .

How Are Returns Trending?

Monster Beverage deserves to be commended in regards to it's returns. The company has consistently earned 30% for the last five years, and the capital employed within the business has risen 58% in that time. Now considering ROCE is an attractive 30%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Monster Beverage can keep this up, we'd be very optimistic about its future.

The Bottom Line On Monster Beverage's ROCE

In summary, we're delighted to see that Monster Beverage has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

One more thing, we've spotted 1 warning sign facing Monster Beverage that you might find interesting.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.