If we want to find a title that could multiply over the long term, what are the underlying trends to look for? In a perfect world, we would like a business to invest more capital in their business, and ideally the returns from that capital increase as well. Ultimately, this demonstrates that this is a company that is reinvesting its profits at increasing rates of return. That said, from the first glance at Food development work (TADAWUL: 9501) We are not jumping from our chairs on the yield trend, but taking a closer look.
Understanding Return on Capital Employed (ROCE)
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. To calculate this metric for Development Works Food, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) Ã· (Total assets – Current liabilities)
0.031 = .Ø³ 2.7 m Ã· (Ø±.Ø³ 109 m – Ø±.Ø³ 22 m) (Based on the last twelve months up to June 2021).
So, Development Works Food posted a ROCE of 3.1%. On its own, this is a low number but it is around the 3.6% average generated by the hospitality industry.
Check out our latest review for Development Works Food
Historical performance is a great place to start when looking for a stock. So above you can see the gauge of Development Works Food’s ROCE compared to its past yields. If you want to examine the performance of Development Works Food in the past in other metrics, you can check out this free graph of past income, income and cash flow.
What can we say about Development Works Food’s ROCE trend?
In terms of Development Works Food’s historic ROCE movements, the trend is not great. To be more precise, ROCE has increased from 34% over the past five years. Although, as income and the amount of assets used in the business have increased, it could suggest that the business is investing in growth and that the additional capital has resulted in a short-term reduction in ROCE. And if the capital increase generates additional returns, the company, and therefore the shareholders, will benefit in the long run.
The key to take away
In summary, despite lower returns in the short term, we are encouraged to see that Development Works Food is reinvesting for growth and therefore has higher sales. And long-term investors should be optimistic about the future, as the stock has brought shareholders a whopping 558% over the past three years. So, while investors seem to recognize these promising trends, we’re taking a more in-depth look at this stock to make sure the other metrics justify the positive opinion.
Since virtually every business faces risks, it’s worth knowing about them, and we’ve spotted 3 warning signs for Development Works Food (including 2 not to be overlooked!) that you should know.
If you want to look for solid businesses with great income, check out this free list of companies with good balance sheets and impressive returns on equity.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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