Here's What's Concerning About Cracker Barrel Old Country Store's (NASDAQ:CBRL) Returns On Capital

What financial metrics can indicate to us that a company is maturing or even in decline? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. Having said that, after a brief look, Cracker Barrel Old Country Store (NASDAQ:CBRL) we aren't filled with optimism, but let's investigate further.

Understanding 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. To calculate this metric for Cracker Barrel Old Country Store, this is the formula:

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

0.04 = US$69m ÷ (US$2.2b - US$448m) (Based on the trailing twelve months to November 2024).

So, Cracker Barrel Old Country Store has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 9.4%.

See our latest analysis for Cracker Barrel Old Country Store

Above you can see how the current ROCE for Cracker Barrel Old Country Store compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Cracker Barrel Old Country Store for free.

The Trend Of ROCE

We are a bit worried about the trend of returns on capital at Cracker Barrel Old Country Store. To be more specific, the ROCE was 17% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Cracker Barrel Old Country Store to turn into a multi-bagger.

What We Can Learn From Cracker Barrel Old Country Store's ROCE

In summary, it's unfortunate that Cracker Barrel Old Country Store is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 51% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we've found 4 warning signs for Cracker Barrel Old Country Store that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.