Returns On Capital At Koninklijke Ahold Delhaize (AMS:AD) Have Stalled

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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, the ROCE of Koninklijke Ahold Delhaize (AMS:AD) looks decent, right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Koninklijke Ahold Delhaize, this is the formula:

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

0.12 = €3.9b ÷ (€49b - €15b) (Based on the trailing twelve months to January 2023).

So, Koninklijke Ahold Delhaize has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 9.8% generated by the Consumer Retailing industry.

Check out our latest analysis for Koninklijke Ahold Delhaize

Above you can see how the current ROCE for Koninklijke Ahold Delhaize 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 Koninklijke Ahold Delhaize.

SWOT Analysis for Koninklijke Ahold Delhaize

What Does the ROCE Trend For Koninklijke Ahold Delhaize Tell Us?

While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 42% in that time. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

The Bottom Line On Koninklijke Ahold Delhaize's ROCE

In the end, Koninklijke Ahold Delhaize has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 90% return if they held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a separate note, we've found 1 warning sign for Koninklijke Ahold Delhaize you'll probably want to know about.

While Koninklijke Ahold Delhaize 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.