If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So on that note, Fraser and Neave (SGX:F99) looks quite promising in regards to its trends of return on capital.

What Is 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. Analysts use this formula to calculate it for Fraser and Neave:

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

0.05 = S$217m ÷ (S$5.1b - S$700m) (Based on the trailing twelve months to June 2024).

So, Fraser and Neave has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Food industry average of 8.8%.

Check out our latest analysis for Fraser and Neave

Above you can see how the current ROCE for Fraser and Neave 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 Fraser and Neave .

What Does the ROCE Trend For Fraser and Neave Tell Us?

While there are companies with higher returns on capital out there, we still find the trend at Fraser and Neave promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 26% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To bring it all together, Fraser and Neave has done well to increase the returns it's generating from its capital employed. Given the stock has declined 12% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing Fraser and Neave, we've discovered 1 warning sign that you should be aware of.