Church & Dwight (NYSE:CHD) Hasn't Managed To Accelerate Its Returns

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Church & Dwight (NYSE:CHD) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Church & Dwight:

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

0.15 = US$1.1b ÷ (US$8.6b - US$1.4b) (Based on the trailing twelve months to December 2023).

So, Church & Dwight has an ROCE of 15%. In isolation, that's a pretty standard return but against the Household Products industry average of 23%, it's not as good.

See our latest analysis for Church & Dwight

Above you can see how the current ROCE for Church & Dwight compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Church & Dwight for free.

What Can We Tell From Church & Dwight's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 51% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that Church & Dwight has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

In the end, Church & Dwight has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 48% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing to note, we've identified 1 warning sign with Church & Dwight and understanding this should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.