Corby Spirit and Wine's (TSE:CSW.A) Returns Have Hit A Wall
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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Corby Spirit and Wine (TSE:CSW.A), we don't think it's current trends fit the mold of a multi-bagger.
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 Corby Spirit and Wine, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = CA$35m ÷ (CA$254m - CA$55m) (Based on the trailing twelve months to June 2022).
Thus, Corby Spirit and Wine has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 12% generated by the Beverage industry.
See our latest analysis for Corby Spirit and Wine
Historical performance is a great place to start when researching a stock so above you can see the gauge for Corby Spirit and Wine's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Corby Spirit and Wine, check out these free graphs here.
What Does the ROCE Trend For Corby Spirit and Wine Tell Us?
Things have been pretty stable at Corby Spirit and Wine, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Corby Spirit and Wine in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
The Bottom Line
We can conclude that in regards to Corby Spirit and Wine's returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 2.9% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
One more thing to note, we've identified 2 warning signs with Corby Spirit and Wine and understanding these should be part of your investment process.
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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