Some Investors May Be Worried About United Natural Foods' (NYSE:UNFI) Returns On Capital

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into United Natural Foods (NYSE:UNFI), we weren't too upbeat about how things were going.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on United Natural Foods is:

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

0.031 = US$168m ÷ (US$8.0b - US$2.5b) (Based on the trailing twelve months to November 2024).

Therefore, United Natural Foods has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 11%.

See our latest analysis for United Natural Foods

In the above chart we have measured United Natural Foods' 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 United Natural Foods for free.

The Trend Of ROCE

We are a bit worried about the trend of returns on capital at United Natural Foods. To be more specific, the ROCE was 4.8% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on United Natural Foods becoming one if things continue as they have.

The Bottom Line On United Natural Foods' ROCE

In summary, it's unfortunate that United Natural Foods is generating lower returns from the same amount of capital. Since the stock has skyrocketed 431% over the last five years, it looks like investors have high expectations of the stock. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

On a final note, we've found 1 warning sign for United Natural Foods that we think you should be aware of.

While United Natural Foods 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.