Arcos Dorados Holdings (NYSE:ARCO) Is Looking To Continue Growing Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at Arcos Dorados Holdings (NYSE:ARCO) so let's look a bit deeper.

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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. The formula for this calculation on Arcos Dorados Holdings is:

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

0.11 = US$291m ÷ (US$3.4b - US$779m) (Based on the trailing twelve months to June 2025).

Thus, Arcos Dorados Holdings has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.6% generated by the Hospitality industry.

See our latest analysis for Arcos Dorados Holdings

Above you can see how the current ROCE for Arcos Dorados Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Arcos Dorados Holdings .

So How Is Arcos Dorados Holdings' ROCE Trending?

Investors would be pleased with what's happening at Arcos Dorados Holdings. Over the last five years, returns on capital employed have risen substantially to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 67% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Arcos Dorados Holdings' ROCE

To sum it up, Arcos Dorados Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 76% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. 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.

Arcos Dorados Holdings does have some risks though, and we've spotted 2 warning signs for Arcos Dorados Holdings that you might be interested in.

While Arcos Dorados Holdings 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.