Slowing Rates Of Return At Carozzi (SNSE:CAROZZI) Leave Little Room For Excitement

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Carozzi's (SNSE:CAROZZI) ROCE trend, we were pretty happy with what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Carozzi:

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

0.10 = CL$106b ÷ (CL$1.3t - CL$324b) (Based on the trailing twelve months to March 2022).

So, Carozzi has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.1% 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're interested in investigating Carozzi's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Carozzi's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 48% in that time. 10% is a pretty standard return, and it provides some comfort knowing that Carozzi 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.

Our Take On Carozzi's ROCE

The main thing to remember is that Carozzi has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 15% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

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

While Carozzi 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.