Barry Callebaut's (VTX:BARN) Returns Have Hit A Wall

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Barry Callebaut's (VTX:BARN) ROCE trend, we were pretty happy with what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Barry Callebaut, this is the formula:

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

0.12 = CHF611m ÷ (CHF7.4b - CHF2.5b) (Based on the trailing twelve months to February 2022).

So, Barry Callebaut has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 9.8% it's much better.

View our latest analysis for Barry Callebaut

Above you can see how the current ROCE for Barry Callebaut compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Barry Callebaut.

What Does the ROCE Trend For Barry Callebaut Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 43% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Barry Callebaut has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Barry Callebaut's ROCE

In the end, Barry Callebaut has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Barry Callebaut, we've discovered 1 warning sign that you should be aware of.

While Barry Callebaut 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.

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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.