United Foods Company (PSC)'s (DFM:UFC) Returns On Capital Not Reflecting Well On The Business

By
Simply Wall St
Published
January 10, 2022
DFM:UFC
Source: Shutterstock

There are a few key trends to look for if we want to identify the next 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at United Foods Company (PSC) (DFM:UFC) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)

0.035 = د.إ11m ÷ (د.إ397m - د.إ78m) (Based on the trailing twelve months to September 2021).

Thus, United Foods Company (PSC) has an ROCE of 3.5%. On its own, that's a low figure but it's around the 3.9% average generated by the Food industry.

See our latest analysis for United Foods Company (PSC)

roce
DFM:UFC Return on Capital Employed January 10th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for United Foods Company (PSC)'s ROCE against it's prior returns. If you're interested in investigating United Foods Company (PSC)'s past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of United Foods Company (PSC)'s historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.5% from 10% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that United Foods Company (PSC) is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 65% over the last five years, it would appear that investors are upbeat about the future. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

United Foods Company (PSC) does have some risks though, and we've spotted 3 warning signs for United Foods Company (PSC) that you might be interested in.

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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.