Returns On Capital Are Showing Encouraging Signs At Ingles Markets (NASDAQ:IMKT.A)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 Ingles Markets (NASDAQ:IMKT.A) and its trend of ROCE, we really liked what we saw.

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 Ingles Markets is:

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

0.11 = US$234m ÷ (US$2.5b - US$287m) (Based on the trailing twelve months to March 2024).

Thus, Ingles Markets has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Consumer Retailing industry.

See our latest analysis for Ingles Markets

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 Ingles Markets' past further, check out this free graph covering Ingles Markets' past earnings, revenue and cash flow.

How Are Returns Trending?

Investors would be pleased with what's happening at Ingles Markets. The data shows that returns on capital have increased substantially over the last five years to 11%. The amount of capital employed has increased too, by 38%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Ingles Markets' ROCE

All in all, it's terrific to see that Ingles Markets is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

While Ingles Markets 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.