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Slowing Rates Of Return At Coca-Cola HBC (LON:CCH) Leave Little Room For Excitement

·3-min read

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So, when we ran our eye over Coca-Cola HBC's (LON:CCH) trend of ROCE, we liked 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. The formula for this calculation on Coca-Cola HBC is:

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

0.13 = €800m ÷ (€8.5b - €2.5b) (Based on the trailing twelve months to December 2021).

So, Coca-Cola HBC has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 14% generated by the Beverage industry.

Check out our latest analysis for Coca-Cola HBC

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Above you can see how the current ROCE for Coca-Cola HBC compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Coca-Cola HBC here for free.

So How Is Coca-Cola HBC's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 31% in that time. 13% is a pretty standard return, and it provides some comfort knowing that Coca-Cola HBC has consistently earned this amount. 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 HBC's ROCE

The main thing to remember is that Coca-Cola HBC has proven its ability to continually reinvest at respectable rates of return. In light of this, the stock has only gained 2.5% over the last five years for shareholders who have owned the stock in this period. So to determine if Coca-Cola HBC is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

One more thing, we've spotted 1 warning sign facing Coca-Cola HBC that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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