US Foods Holding (NYSE:USFD) Will Want To Turn Around Its Return Trends

There are a few key trends to look for if we want to identify the next multi-bagger. 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. In light of that, when we looked at US Foods Holding (NYSE:USFD) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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 US Foods Holding is:

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

0.05 = US$496m ÷ (US$13b - US$3.0b) (Based on the trailing twelve months to July 2022).

Thus, US Foods Holding has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 9.2%.

See our latest analysis for US Foods Holding

In the above chart we have measured US Foods Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for US Foods Holding.

What Can We Tell From US Foods Holding's ROCE Trend?

In terms of US Foods Holding's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 6.6% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From US Foods Holding's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that US Foods Holding is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 9.6% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

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

While US Foods Holding 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.