Returns On Capital Are Showing Encouraging Signs At Carozzi (SNSE:CAROZZI)

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Carozzi's (SNSE:CAROZZI) returns on capital, so let's have a look.

Understanding 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 Carozzi, this is the formula:

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

0.18 = CL$206b ÷ (CL$1.5t - CL$380b) (Based on the trailing twelve months to June 2024).

So, Carozzi has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 6.5% it's much better.

View our latest analysis for Carozzi

Historical performance is a great place to start when researching a stock so above you can see the gauge for Carozzi's ROCE against it's prior returns. If you'd like to look at how Carozzi has performed in the past in other metrics, you can view this free graph of Carozzi's past earnings, revenue and cash flow.

The Trend Of ROCE

Carozzi is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 42% more capital is being employed now too. So we're very much inspired by what we're seeing at Carozzi thanks to its ability to profitably reinvest capital.

Our Take On Carozzi's ROCE

All in all, it's terrific to see that Carozzi is reaping the rewards from prior investments and is growing its capital base. And with a respectable 77% 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 Carozzi can keep these trends up, it could have a bright future ahead.

Carozzi does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.

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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.