U.S. markets open in 8 hours 44 minutes
  • S&P Futures

    4,262.00
    +7.25 (+0.17%)
     
  • Dow Futures

    34,417.00
    +36.00 (+0.10%)
     
  • Nasdaq Futures

    14,137.75
    +13.00 (+0.09%)
     
  • Russell 2000 Futures

    2,326.50
    +2.90 (+0.12%)
     
  • Crude Oil

    71.09
    +0.21 (+0.30%)
     
  • Gold

    1,867.10
    +1.20 (+0.06%)
     
  • Silver

    27.81
    -0.23 (-0.83%)
     
  • EUR/USD

    1.2129
    +0.0006 (+0.05%)
     
  • 10-Yr Bond

    1.5010
    -1.5010 (-100.00%)
     
  • Vix

    16.39
    -15.65 (-100.00%)
     
  • GBP/USD

    1.4114
    +0.0006 (+0.04%)
     
  • USD/JPY

    110.0710
    +0.0100 (+0.01%)
     
  • BTC-USD

    40,535.68
    +1,212.78 (+3.08%)
     
  • CMC Crypto 200

    1,016.79
    +47.95 (+4.95%)
     
  • FTSE 100

    7,146.68
    +12.62 (+0.18%)
     
  • Nikkei 225

    29,437.70
    +275.90 (+0.95%)
     

Investors Met With Slowing Returns on Capital At Lifeway Foods (NASDAQ:LWAY)

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.

If you're looking for a multi-bagger, there's a few things to 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Lifeway Foods (NASDAQ:LWAY) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Lifeway Foods is:

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

0.095 = US$4.9m ÷ (US$60m - US$8.4m) (Based on the trailing twelve months to December 2020).

So, Lifeway Foods has an ROCE of 9.5%. In absolute terms, that's a low return but it's around the Food industry average of 8.4%.

View our latest analysis for Lifeway Foods

roce
roce

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Lifeway Foods has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Lifeway Foods Tell Us?

There hasn't been much to report for Lifeway Foods' returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Lifeway Foods to be a multi-bagger going forward.

The Bottom Line On Lifeway Foods' ROCE

We can conclude that in regards to Lifeway Foods' returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 45% in the last five years. Therefore based on the analysis done in this article, we don't think Lifeway Foods has the makings of a multi-bagger.

One final note, you should learn about the 3 warning signs we've spotted with Lifeway Foods (including 1 which is potentially serious) .

While Lifeway Foods isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

This article by Simply Wall St is general in nature. 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.

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