The Trend Of High Returns At Cal-Maine Foods (NASDAQ:CALM) Has Us Very Interested

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Cal-Maine Foods' (NASDAQ:CALM) returns on capital, so let's have a look.

What Is 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. Analysts use this formula to calculate it for Cal-Maine Foods:

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

0.25 = US$506m ÷ (US$2.4b - US$325m) (Based on the trailing twelve months to August 2024).

Therefore, Cal-Maine Foods has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Food industry average of 11%.

View our latest analysis for Cal-Maine Foods

In the above chart we have measured Cal-Maine 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 Cal-Maine Foods for free.

So How Is Cal-Maine Foods' ROCE Trending?

The fact that Cal-Maine Foods is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 25% on its capital. And unsurprisingly, like most companies trying to break into the black, Cal-Maine Foods is utilizing 102% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

To the delight of most shareholders, Cal-Maine Foods has now broken into profitability. And a remarkable 181% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Cal-Maine Foods, we've spotted 2 warning signs, and 1 of them can't be ignored.

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.