Darling Ingredients (NYSE:DAR) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential 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. So on that note, Darling Ingredients (NYSE:DAR) looks quite promising in regards to its trends of return on capital.

What Is 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 Darling Ingredients is:

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

0.06 = US$583m ÷ (US$11b - US$1.0b) (Based on the trailing twelve months to September 2023).

So, Darling Ingredients has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 10%.

Check out our latest analysis for Darling Ingredients

In the above chart we have measured Darling Ingredients' 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 Darling Ingredients for free.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 6.0%. The amount of capital employed has increased too, by 126%. 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 Darling Ingredients' ROCE

All in all, it's terrific to see that Darling Ingredients is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 95% return over the last five years. In light of that, we think it's worth looking further into this stock because if Darling Ingredients can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Darling Ingredients, we've discovered 1 warning sign that you should be aware of.

While Darling Ingredients 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.