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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Coca-Cola Consolidated's (NASDAQ:COKE) look very promising so lets take a look.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Coca-Cola Consolidated is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = US$875m ÷ (US$5.3b - US$1.0b) (Based on the trailing twelve months to September 2024).
Thus, Coca-Cola Consolidated has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.
See our latest analysis for Coca-Cola Consolidated
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Coca-Cola Consolidated's past further, check out this free graph covering Coca-Cola Consolidated's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
Investors would be pleased with what's happening at Coca-Cola Consolidated. Over the last five years, returns on capital employed have risen substantially to 21%. The amount of capital employed has increased too, by 69%. So we're very much inspired by what we're seeing at Coca-Cola Consolidated thanks to its ability to profitably reinvest capital.
The Bottom Line
In summary, it's great to see that Coca-Cola Consolidated can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 377% 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.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for COKE on our platform that is definitely worth checking out.