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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Fraser & Neave Holdings Bhd (KLSE:F&N) looks decent, right now, so lets see what the trend of returns can tell us.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Fraser & Neave Holdings Bhd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = RM472m ÷ (RM4.2b - RM833m) (Based on the trailing twelve months to September 2022).
So, Fraser & Neave Holdings Bhd has an ROCE of 14%. In isolation, that's a pretty standard return but against the Beverage industry average of 21%, it's not as good.
See our latest analysis for Fraser & Neave Holdings Bhd
In the above chart we have measured Fraser & Neave Holdings Bhd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Does the ROCE Trend For Fraser & Neave Holdings Bhd Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 41% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that Fraser & Neave Holdings Bhd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
Our Take On Fraser & Neave Holdings Bhd's ROCE
The main thing to remember is that Fraser & Neave Holdings Bhd has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 14% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
If you want to continue researching Fraser & Neave Holdings Bhd, you might be interested to know about the 1 warning sign that our analysis has discovered.