We Like These Underlying Return On Capital Trends At Food Empire Holdings (SGX:F03)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in Food Empire Holdings' (SGX:F03) returns on capital, so let's have a look.

What is 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. The formula for this calculation on Food Empire Holdings is:

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

0.13 = US$34m ÷ (US$313m - US$55m) (Based on the trailing twelve months to December 2020).

Therefore, Food Empire Holdings has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Food industry average of 12%.

See our latest analysis for Food Empire Holdings

In the above chart we have measured Food Empire Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Food Empire Holdings here for free.

How Are Returns Trending?

We like the trends that we're seeing from Food Empire Holdings. The data shows that returns on capital have increased substantially over the last five years to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 57%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Food Empire Holdings' ROCE

In summary, it's great to see that Food Empire Holdings can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Food Empire Holdings can keep these trends up, it could have a bright future ahead.

If you want to continue researching Food Empire Holdings, you might be interested to know about the 1 warning sign that our analysis has discovered.

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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