Some Investors May Be Worried About Del Monte Pacific's (SGX:D03) Returns On Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after glancing at the trends within Del Monte Pacific (SGX:D03), we weren't too hopeful.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Del Monte Pacific is:

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

0.012 = US$22m ÷ (US$3.0b - US$1.2b) (Based on the trailing twelve months to January 2025).

Therefore, Del Monte Pacific has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Food industry average of 11%.

Check out our latest analysis for Del Monte Pacific

Historical performance is a great place to start when researching a stock so above you can see the gauge for Del Monte Pacific's ROCE against it's prior returns. If you're interested in investigating Del Monte Pacific's past further, check out this free graph covering Del Monte Pacific's past earnings, revenue and cash flow.

What Does the ROCE Trend For Del Monte Pacific Tell Us?

In terms of Del Monte Pacific's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 2.4% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Del Monte Pacific to turn into a multi-bagger.

The Bottom Line On Del Monte Pacific's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Long term shareholders who've owned the stock over the last five years have experienced a 21% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Del Monte Pacific (including 1 which is significant) .

While Del Monte Pacific 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.