Returns At Coca-Cola Europacific Partners (AMS:CCEP) Are On The Way Up
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. With that in mind, we've noticed some promising trends at Coca-Cola Europacific Partners (AMS:CCEP) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Coca-Cola Europacific Partners, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = €2.4b ÷ (€30b - €8.8b) (Based on the trailing twelve months to June 2023).
Thus, Coca-Cola Europacific Partners has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Beverage industry average of 9.8%.
View our latest analysis for Coca-Cola Europacific Partners
Above you can see how the current ROCE for Coca-Cola Europacific Partners compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
The trends we've noticed at Coca-Cola Europacific Partners are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 41% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
What We Can Learn From Coca-Cola Europacific Partners' ROCE
To sum it up, Coca-Cola Europacific Partners has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 72% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you want to continue researching Coca-Cola Europacific Partners, you might be interested to know about the 2 warning signs that our analysis has discovered.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
