Here's What To Make Of Coca-Cola Consolidated's (NASDAQ:COKE) Returns On Capital
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Coca-Cola Consolidated (NASDAQ:COKE), it didn't seem to tick all of these boxes.
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. 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)
0.077 = US$196m ÷ (US$3.2b - US$634m) (Based on the trailing twelve months to June 2020).
So, Coca-Cola Consolidated has an ROCE of 7.7%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 14%.
See our latest analysis for Coca-Cola Consolidated
Historical performance is a great place to start when researching a stock so above you can see the gauge for Coca-Cola Consolidated's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Coca-Cola Consolidated, check out these free graphs here.
How Are Returns Trending?
In terms of Coca-Cola Consolidated's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 7.7% and the business has deployed 83% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
The Bottom Line On Coca-Cola Consolidated's ROCE
In conclusion, Coca-Cola Consolidated has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 74% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
If you'd like to know more about Coca-Cola Consolidated, we've spotted 3 warning signs, and 1 of them is a bit concerning.
While Coca-Cola Consolidated isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
This article by Simply Wall St is general in nature. 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.
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