Slowing Rates Of Return At Alimentation Couche-Tard (TSE:ATD.B) Leave Little Room For Excitement

By
Simply Wall St
Published
November 03, 2021
TSX:ATD.B
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Alimentation Couche-Tard's (TSE:ATD.B) trend of ROCE, we liked what we saw.

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 Alimentation Couche-Tard is:

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

0.15 = US$3.6b ÷ (US$29b - US$5.3b) (Based on the trailing twelve months to July 2021).

Thus, Alimentation Couche-Tard has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 11% generated by the Consumer Retailing industry.

View our latest analysis for Alimentation Couche-Tard

roce
TSX:ATD.B Return on Capital Employed November 3rd 2021

Above you can see how the current ROCE for Alimentation Couche-Tard 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 report on analyst forecasts for the company.

So How Is Alimentation Couche-Tard's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 141% in that time. 15% is a pretty standard return, and it provides some comfort knowing that Alimentation Couche-Tard has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

In the end, Alimentation Couche-Tard has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 48% return if they held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching Alimentation Couche-Tard, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Alimentation Couche-Tard may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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