If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at China Resources Beer (Holdings) (HKG:291), it didn't seem to tick all of these boxes.

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. The formula for this calculation on China Resources Beer (Holdings) is:

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

0.099 = CN¥5.0b ÷ (CN¥77b - CN¥26b) (Based on the trailing twelve months to June 2023).

Thus, China Resources Beer (Holdings) has an ROCE of 9.9%. In absolute terms, that's a low return but it's around the Beverage industry average of 11%.

Check out our latest analysis for China Resources Beer (Holdings)

Above you can see how the current ROCE for China Resources Beer (Holdings) 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 China Resources Beer (Holdings).

What Can We Tell From China Resources Beer (Holdings)'s ROCE Trend?

There are better returns on capital out there than what we're seeing at China Resources Beer (Holdings). Over the past five years, ROCE has remained relatively flat at around 9.9% and the business has deployed 128% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, China Resources Beer (Holdings) has done well to reduce current liabilities to 34% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From China Resources Beer (Holdings)'s ROCE

Long story short, while China Resources Beer (Holdings) has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 62% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

While China Resources Beer (Holdings) doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

While China Resources Beer (Holdings) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.