Investors Met With Slowing Returns on Capital At Heineken Holding (AMS:HEIO)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. That's why when we briefly looked at Heineken Holding's (AMS:HEIO) ROCE trend, we were pretty happy with what we saw.

What Is 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 Heineken Holding:

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

0.10 = €4.0b ÷ (€55b - €15b) (Based on the trailing twelve months to December 2023).

Therefore, Heineken Holding has an ROCE of 10%. That's a pretty standard return and it's in line with the industry average of 10%.

Check out our latest analysis for Heineken Holding

roce

Historical performance is a great place to start when researching a stock so above you can see the gauge for Heineken Holding's ROCE against it's prior returns. If you'd like to look at how Heineken Holding has performed in the past in other metrics, you can view this free graph of Heineken Holding's past earnings, revenue and cash flow.

So How Is Heineken Holding's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 26% more capital in the last five years, and the returns on that capital have remained stable at 10%. Since 10% 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.

In Conclusion...

In the end, Heineken Holding has proven its ability to adequately reinvest capital at good rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last five years. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Heineken Holding does have some risks though, and we've spotted 3 warning signs for Heineken Holding that you might be interested in.

While Heineken Holding 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.