What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Thai Beverage (SGX:Y92) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Thai Beverage is:

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

0.088 = ฿37b ÷ (฿496b - ฿74b) (Based on the trailing twelve months to March 2024).

Therefore, Thai Beverage has an ROCE of 8.8%. Ultimately, that's a low return and it under-performs the Beverage industry average of 12%.

The Trend Of ROCE

Things have been pretty stable at Thai Beverage, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Thai Beverage to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Thai Beverage has been paying out a decent 52% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

Our Take On Thai Beverage's ROCE

We can conclude that in regards to Thai Beverage's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 30% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers.