Alimentation Couche-Tard (TSE:ATD) Shareholders Will Want The ROCE Trajectory To Continue

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. 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 looked at Alimentation Couche-Tard (TSE:ATD) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Alimentation Couche-Tard:

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

0.17 = US$4.2b ÷ (US$29b - US$5.2b) (Based on the trailing twelve months to April 2023).

Thus, Alimentation Couche-Tard has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 12% generated by the Consumer Retailing industry.

View our latest analysis for Alimentation Couche-Tard

In the above chart we have measured Alimentation Couche-Tard's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Alimentation Couche-Tard here for free.

The Trend Of ROCE

The trends we've noticed at Alimentation Couche-Tard are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 26%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

All in all, it's terrific to see that Alimentation Couche-Tard is reaping the rewards from prior investments and is growing its capital base. And a remarkable 135% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Alimentation Couche-Tard can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Alimentation Couche-Tard that you might find interesting.

While Alimentation Couche-Tard isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.