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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Maple Leaf Foods (TSE:MFI) and its trend of ROCE, we really liked what we saw.
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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. Analysts use this formula to calculate it for Maple Leaf Foods:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.09 = CA$314m ÷ (CA$4.4b - CA$957m) (Based on the trailing twelve months to December 2024).
Therefore, Maple Leaf Foods has an ROCE of 9.0%. On its own, that's a low figure but it's around the 11% average generated by the Food industry.
Check out our latest analysis for Maple Leaf Foods
In the above chart we have measured Maple Leaf Foods' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Maple Leaf Foods .
What Does the ROCE Trend For Maple Leaf Foods Tell Us?
Maple Leaf Foods' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 107% 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.
In Conclusion...
As discussed above, Maple Leaf Foods appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Considering the stock has delivered 14% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.