Thai Beverage (SGX:Y92) Is Reinvesting At Lower Rates Of Return
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growingreturnon capital employed (ROCE) and then alongside that, an ever-increasingbaseof 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. However, after briefly looking over the numbers, we don't thinkThai Beverage(SGX:Y92) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
What is Return On Capital Employed (ROCE)?
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. To calculate this metric for Thai Beverage, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.091 = ฿34b ÷ (฿473b - ฿95b)(Based on the trailing twelve months to September 2021).
Thus,Thai Beverage has an ROCE of 9.1%.On its own, that's a low figure but it's around the 11% average generated by the Beverage industry.
What Does the ROCE Trend For Thai Beverage Tell Us?
When we looked at the ROCE trend at Thai Beverage, we didn't gain much confidence. To be more specific, ROCE has fallen from 17% over the last five years. However it looks like Thai Beverage might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line
In summary, Thai Beverage is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 13% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
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