Will the Promising Trends At Empire (TSE:EMP.A) Continue?

If you're looking for a multi-bagger, there's a few things to 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. With that in mind, we've noticed some promising trends at Empire (TSE:EMP.A) so let's look a bit deeper.

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. To calculate this metric for Empire, this is the formula:

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

0.11 = CA$1.2b ÷ (CA$15b - CA$3.6b) (Based on the trailing twelve months to October 2020).

Thus, Empire has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

See our latest analysis for Empire

In the above chart we have measured Empire'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 Empire here for free.

What Does the ROCE Trend For Empire Tell Us?

The trends we've noticed at Empire are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 24% more capital is being employed now too. So we're very much inspired by what we're seeing at Empire thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Empire is reaping the rewards from prior investments and is growing its capital base. And with a respectable 55% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Empire can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

While Empire 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. 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.
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