Yahoo Finance Returns On Capital At Coca-Cola (NYSE:KO) Have Hit The Brakes
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. So, when we ran our eye over Coca-Cola's (NYSE:KO) trend of ROCE, we liked what we saw.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Coca-Cola:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$12b ÷ (US$93b - US$20b) (Based on the trailing twelve months to December 2022).
Therefore, Coca-Cola has an ROCE of 17%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Beverage industry average of 14%.
View our latest analysis for Coca-Cola
Above you can see how the current ROCE for Coca-Cola compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From Coca-Cola's ROCE Trend?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 20% in that time. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
What We Can Learn From Coca-Cola's ROCE
The main thing to remember is that Coca-Cola has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 65% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Like most companies, Coca-Cola does come with some risks, and we've found 2 warning signs that you should be aware of.
While Coca-Cola isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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