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Albertsons Companies' (NYSE:ACI) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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 Albertsons Companies' (NYSE:ACI) returns on capital, so let's have a look.

What Is 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 Albertsons Companies:

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

0.13 = US$2.6b ÷ (US$28b - US$7.9b) (Based on the trailing twelve months to June 2022).

Therefore, Albertsons Companies has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Consumer Retailing industry.

View our latest analysis for Albertsons Companies

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Above you can see how the current ROCE for Albertsons Companies 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 Albertsons Companies here for free.

What Can We Tell From Albertsons Companies' ROCE Trend?

Albertsons Companies is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 146% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Albertsons Companies' ROCE

As discussed above, Albertsons Companies appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 20% return over the last year. In light of that, we think it's worth looking further into this stock because if Albertsons Companies can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 4 warning signs with Albertsons Companies and understanding these should be part of your investment process.

While Albertsons Companies 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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