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There's Been No Shortage Of Growth Recently For Coca-Cola HBC's (LON:CCH) Returns On Capital

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What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Coca-Cola HBC (LON:CCH) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Coca-Cola HBC:

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

0.14 = €798m ÷ (€8.4b - €2.8b) (Based on the trailing twelve months to July 2021).

Therefore, Coca-Cola HBC has an ROCE of 14%. By itself that's a normal return on capital and it's in line with the industry's average returns of 14%.

View 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 to see what analysts are forecasting going forward, you should check out our free report for Coca-Cola HBC.

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

Coca-Cola HBC is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 28%. So we're very much inspired by what we're seeing at Coca-Cola HBC thanks to its ability to profitably reinvest capital.

What We Can Learn From Coca-Cola HBC's ROCE

In summary, it's great to see that Coca-Cola HBC can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 70% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 2 warning signs facing Coca-Cola HBC that you might find interesting.

While Coca-Cola HBC may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.