Returns gain momentum at Coca-Cola Consolidated (NASDAQ: COKE)
If we are to find a title that could multiply over the long term, what are the underlying trends that we need to look for? Ideally, a business will display two trends; first growth to recover on capital employed (ROCE) and on the other hand, an increase amount capital employed. Basically, it means that a business has profitable initiatives that it can keep reinvesting in, which is a hallmark of a dialing machine. With that in mind, we’ve noticed some promising trends at Coca-Cola consolidated (NASDAQ: COKE) So let’s take a closer look.
What is Return on Employee Capital (ROCE)?
For those who don’t know what ROCE is, it measures the amount of pre-tax profit a business can generate from the capital employed in its business. Analysts use this formula to calculate it for Coca-Cola Consolidated:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.16 = $ 416 million ÷ ($ 3.3 billion – $ 744 million) (Based on the last twelve months up to July 2021).
So, Coca-Cola Consolidated has a ROCE of 16%. In absolute terms it’s a decent return, but compared to the beverage industry average of 13% it’s much better.
See our latest analysis for Coca-Cola Consolidated
Above you can see how Coca-Cola Consolidated’s current ROCE compares to its previous returns on equity, but there is little you can say about the past. If you like, you can view analyst forecasts covering Coca-Cola Consolidated here for free.
What does Coca-Cola Consolidated’s ROCE trend tell us?
We love the trends we see from Coca-Cola Consolidated. Over the past five years, returns on capital employed have increased substantially to 16%. Basically the business earns more per dollar of capital invested and on top of that 40% more capital is also being used now. This may indicate that there are many opportunities to invest capital in-house and at ever higher rates, a common combination among multi-baggers.
Our opinion on the ROCE of Coca-Cola Consolidated
To sum up, Coca-Cola Consolidated has proven that it can reinvest in the business and generate higher returns on that capital employed, which is great. And a remarkable 170% total return over the past five years tells us that investors expect more good things to come in the future. Therefore, we believe it would be worth checking out whether these trends will continue.
On a separate note, we have found 2 warning signs for Coca-Cola Consolidated you will probably want to know more.
Although Coca-Cola Consolidated does not generate the highest return, check out this free list of companies that generate high returns on equity with strong balance sheets.
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