Returns At Nomad Foods (NYSE:NOMD) Appear To Be Weighed Down

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at Nomad Foods (NYSE:NOMD) and its ROCE trend, we weren't exactly thrilled.

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

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 Nomad Foods is:

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

0.079 = €427m ÷ (€6.4b - €961m) (Based on the trailing twelve months to June 2023).

Thus, Nomad Foods has an ROCE of 7.9%. 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 Nomad Foods

In the above chart we have measured Nomad 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 Nomad Foods here for free.

What Does the ROCE Trend For Nomad Foods Tell Us?

In terms of Nomad Foods' historical ROCE trend, it doesn't exactly demand attention. The company has employed 24% more capital in the last five years, and the returns on that capital have remained stable at 7.9%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Nomad Foods' ROCE

In summary, Nomad Foods has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 30% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Nomad Foods (including 1 which doesn't sit too well with us) .

While Nomad Foods 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.