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To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after glancing at the trends within C&C Group (LON:CCR), we weren't too hopeful.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for C&C Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.056 = €59m ÷ (€1.5b - €491m) (Based on the trailing twelve months to August 2023).
Thus, C&C Group has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 15%.
Check out our latest analysis for C&C Group
Above you can see how the current ROCE for C&C Group 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 report for C&C Group.
How Are Returns Trending?
There is reason to be cautious about C&C Group, given the returns are trending downwards. To be more specific, the ROCE was 8.7% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on C&C Group becoming one if things continue as they have.
In Conclusion...
In summary, it's unfortunate that C&C Group is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last three years have experienced a 32% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.