If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Coca-Cola FEMSA. de (NYSE:KOF) and its trend of ROCE, we really liked what we saw.

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

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

0.16 = Mex$35b ÷ (Mex$288b - Mex$66b) (Based on the trailing twelve months to June 2024).

Thus, Coca-Cola FEMSA. de has an ROCE of 16%. By itself that's a normal return on capital and it's in line with the industry's average returns of 16%.

View our latest analysis for Coca-Cola FEMSA. de

In the above chart we have measured Coca-Cola FEMSA. de's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Coca-Cola FEMSA. de for free.

How Are Returns Trending?

Coca-Cola FEMSA. de is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 27% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Coca-Cola FEMSA. de's ROCE

To bring it all together, Coca-Cola FEMSA. de has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 84% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for KOF on our platform that is definitely worth checking out.

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.