Returns On Capital Are Showing Encouraging Signs At Oil-Dri Corporation of America (NYSE:ODC)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. So when we looked at Oil-Dri Corporation of America (NYSE:ODC) and its trend of ROCE, we really liked what we saw.

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

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. To calculate this metric for Oil-Dri Corporation of America, this is the formula:

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

0.18 = US$44m ÷ (US$289m - US$52m) (Based on the trailing twelve months to October 2023).

So, Oil-Dri Corporation of America has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 16% generated by the Household Products industry.

See our latest analysis for Oil-Dri Corporation of America

Historical performance is a great place to start when researching a stock so above you can see the gauge for Oil-Dri Corporation of America's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Oil-Dri Corporation of America, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Oil-Dri Corporation of America. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 47%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Oil-Dri Corporation of America's ROCE

In summary, it's great to see that Oil-Dri Corporation of America can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 186% total return over the last five years tells us that investors are expecting more good things to come in the future. 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 1 warning sign for Oil-Dri Corporation of America you'll probably want to know about.

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.