Coca-Cola FEMSA. de (NYSE:KOF) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 FEMSA. de's (NYSE:KOF) returns on capital, so let's have a look.

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 Coca-Cola FEMSA. de, this is the formula:

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

0.16 = Mex$35b ÷ (Mex$288b - Mex$66b) (Based on the trailing twelve months to June 2024).

Therefore, Coca-Cola FEMSA. de has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Beverage industry average of 17%.

See our latest analysis for Coca-Cola FEMSA. de

In the above chart we have measured Coca-Cola FEMSA. de's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Coca-Cola FEMSA. de for free.

What Can We Tell From Coca-Cola FEMSA. de's ROCE Trend?

Coca-Cola FEMSA. de has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 27% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Coca-Cola FEMSA. de's ROCE

As discussed above, Coca-Cola FEMSA. de appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 88% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Coca-Cola FEMSA. de looks impressive, no company is worth an infinite price. The intrinsic value infographic for KOF helps visualize whether it is currently trading for a fair price.

While Coca-Cola FEMSA. de may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.