Investors Could Be Concerned With Molson Coors Beverage's (NYSE:TAP) Returns On Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Molson Coors Beverage (NYSE:TAP), we weren't too hopeful.

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. To calculate this metric for Molson Coors Beverage, this is the formula:

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

0.045 = US$1.0b ÷ (US$26b - US$3.4b) (Based on the trailing twelve months to December 2022).

Therefore, Molson Coors Beverage has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 14%.

View our latest analysis for Molson Coors Beverage

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Above you can see how the current ROCE for Molson Coors Beverage 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 Molson Coors Beverage.

So How Is Molson Coors Beverage's ROCE Trending?

We are a bit worried about the trend of returns on capital at Molson Coors Beverage. About five years ago, returns on capital were 6.8%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Molson Coors Beverage becoming one if things continue as they have.

Our Take On Molson Coors Beverage's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Long term shareholders who've owned the stock over the last five years have experienced a 20% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to continue researching Molson Coors Beverage, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Molson Coors Beverage isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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