Investors Met With Slowing Returns on Capital At Coca-Cola FEMSA. de (NYSE:KOF)

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. In light of that, when we looked at Coca-Cola FEMSA. de (NYSE:KOF) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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

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

0.12 = Mex$25b ÷ (Mex$262b - Mex$49b) (Based on the trailing twelve months to March 2021).

Thus, Coca-Cola FEMSA. de has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Beverage industry average of 14%.

See our latest analysis for Coca-Cola FEMSA. de

Above you can see how the current ROCE for Coca-Cola FEMSA. de 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 Coca-Cola FEMSA. de here for free.

What Does the ROCE Trend For Coca-Cola FEMSA. de Tell Us?

Over the past five years, Coca-Cola FEMSA. de's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Coca-Cola FEMSA. de doesn't end up being a multi-bagger in a few years time.

In Conclusion...

In summary, Coca-Cola FEMSA. de isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 27% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Coca-Cola FEMSA. de does have some risks though, and we've spotted 2 warning signs for Coca-Cola FEMSA. de that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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