Market Analysis

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. The formula for this calculation on Coca-Cola is:

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

0.20 = US$14b ÷ (US$101b - US$29b) (Based on the trailing twelve months to June 2024).

Thus, Coca-Cola has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Beverage industry average of 17%.
Above you can see how the current ROCE for Coca-Cola 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 analyst report for Coca-Cola .

What Can We Tell From Coca-Cola's ROCE Trend?
There hasn't been much to report for Coca-Cola's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. Although current returns are high, we'd need more evidence of underlying growth for it to look like a multi-bagger going forward. That probably explains why Coca-Cola has been paying out 66% of its earnings as dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

The Bottom Line
In summary, Coca-Cola isn't compounding its earnings but is generating decent returns on the same amount of capital employed. Since the stock has gained an impressive 47% 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.