Returns On Capital Signal Difficult Times Ahead For United Foods Company (PSC) (DFM:UFC)

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after we looked into United Foods Company (PSC) (DFM:UFC), the trends above didn't look too great.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on United Foods Company (PSC) is:

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

0.054 = د.إ20m ÷ (د.إ456m - د.إ79m) (Based on the trailing twelve months to March 2025).

Therefore, United Foods Company (PSC) has an ROCE of 5.4%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.5%.

View our latest analysis for United Foods Company (PSC)

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how United Foods Company (PSC) has performed in the past in other metrics, you can view this free graph of United Foods Company (PSC)'s past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There is reason to be cautious about United Foods Company (PSC), given the returns are trending downwards. About five years ago, returns on capital were 9.4%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on United Foods Company (PSC) becoming one if things continue as they have.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. However the stock has delivered a 70% return to shareholders over the last three years, so investors might be expecting the trends to turn around. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

United Foods Company (PSC) does have some risks though, and we've spotted 2 warning signs for United Foods Company (PSC) that you might be interested in.

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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.