Investors Will Want Woolworths Holdings' (JSE:WHL) Growth In ROCE To Persist

What trends should we look for it we want to identify stocks that can 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Woolworths Holdings' (JSE:WHL) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Woolworths Holdings, this is the formula:

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

0.18 = R5.1b ÷ (R41b - R12b) (Based on the trailing twelve months to June 2025).

Thus, Woolworths Holdings has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Multiline Retail industry.

See our latest analysis for Woolworths Holdings

Above you can see how the current ROCE for Woolworths Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Woolworths Holdings .

The Trend Of ROCE

We're pretty happy with how the ROCE has been trending at Woolworths Holdings. We found that the returns on capital employed over the last five years have risen by 84%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 42% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Woolworths Holdings may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line

In a nutshell, we're pleased to see that Woolworths Holdings has been able to generate higher returns from less capital. And with a respectable 81% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 2 warning signs facing Woolworths Holdings that you might find interesting.

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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.