Investors Will Want Deoleo's (BME:OLE) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. So when we looked at Deoleo (BME:OLE) and its trend of ROCE, we really liked what we saw.

Understanding 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 Deoleo:

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

0.044 = €33m ÷ (€881m - €138m) (Based on the trailing twelve months to December 2022).

Therefore, Deoleo has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Food industry average of 8.6%.

View our latest analysis for Deoleo

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Deoleo's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Deoleo's ROCE Trending?

It's nice to see that ROCE is headed in the right direction, even if it is still relatively low. The figures show that over the last five years, returns on capital have grown by 236%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Deoleo appears to been achieving more with less, since the business is using 27% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

What We Can Learn From Deoleo's ROCE

In summary, it's great to see that Deoleo has been able to turn things around and earn higher returns on lower amounts of capital. And with a respectable 67% 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. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 2 warning signs for Deoleo that we think you should be aware of.

While Deoleo 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.