Molson Coors Beverage's (NYSE:TAP) Returns Have Hit A Wall

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Having said that, from a first glance at Molson Coors Beverage (NYSE:TAP) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Molson Coors Beverage is:

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

0.056 = US$1.3b ÷ (US$27b - US$3.8b) (Based on the trailing twelve months to June 2023).

Therefore, Molson Coors Beverage has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 16%.

View our latest analysis for Molson Coors Beverage

Above you can see how the current ROCE for Molson Coors Beverage compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Molson Coors Beverage here for free.

What The Trend Of ROCE Can Tell Us

Over the past five years, Molson Coors Beverage's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Molson Coors Beverage in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why Molson Coors Beverage is paying out 35% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Key Takeaway

In a nutshell, Molson Coors Beverage has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 15% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing to note, we've identified 4 warning signs with Molson Coors Beverage and understanding them should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.