There's Been No Shortage Of Growth Recently For Mondelez International's (NASDAQ:MDLZ) Returns On Capital

September 07, 2022
  •  Updated
November 05, 2022
NasdaqGS:MDLZ
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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. 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 Mondelez International's (NASDAQ:MDLZ) returns on capital, so let's have a look.

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

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. To calculate this metric for Mondelez International, this is the formula:

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

0.094 = US$4.9b ÷ (US$66b - US$14b) (Based on the trailing twelve months to June 2022).

Therefore, Mondelez International has an ROCE of 9.4%. Even though it's in line with the industry average of 9.5%, it's still a low return by itself.

Check out our latest analysis for Mondelez International

roce
NasdaqGS:MDLZ Return on Capital Employed September 7th 2022

In the above chart we have measured Mondelez International's 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 Mondelez International here for free.

What Can We Tell From Mondelez International's ROCE Trend?

Mondelez International is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 27% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Mondelez International's ROCE

In summary, we're delighted to see that Mondelez International has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 63% 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. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 2 warning signs for Mondelez International you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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