Shareholders Would Enjoy A Repeat Of Ingles Markets' (NASDAQ:IMKT.A) Recent Growth In Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Ingles Markets (NASDAQ:IMKT.A) looks great, so lets see what the trend can tell us.

Understanding 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. Analysts use this formula to calculate it for Ingles Markets:

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

0.20 = US$355m ÷ (US$2.1b - US$308m) (Based on the trailing twelve months to December 2021).

Therefore, Ingles Markets has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Consumer Retailing industry average of 8.5%.

View 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 want to delve into the historical earnings, revenue and cash flow of Ingles Markets, check out these free graphs here.

What Does the ROCE Trend For Ingles Markets Tell Us?

Ingles Markets' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 130% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Ingles Markets' ROCE

In summary, we're delighted to see that Ingles Markets has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 161% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Ingles Markets can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Ingles Markets, we've discovered 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.