There's Been No Shortage Of Growth Recently For Fresh Del Monte Produce's (NYSE:FDP) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 Fresh Del Monte Produce (NYSE:FDP) so let's look a bit deeper.

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. The formula for this calculation on Fresh Del Monte Produce is:

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

0.053 = US$136m ÷ (US$3.1b - US$532m) (Based on the trailing twelve months to June 2024).

Therefore, Fresh Del Monte Produce has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Food industry average of 11%.

Check out our latest analysis for Fresh Del Monte Produce

Above you can see how the current ROCE for Fresh Del Monte Produce compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Fresh Del Monte Produce .

How Are Returns Trending?

Fresh Del Monte Produce has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 32% 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 17%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Fresh Del Monte Produce's ROCE

As discussed above, Fresh Del Monte Produce appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 22% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a separate note, we've found 2 warning signs for Fresh Del Monte Produce you'll probably want to know about.

While Fresh Del Monte Produce 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.