The Return Trends At Oil-Dri Corporation of America (NYSE:ODC) Look Promising
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Oil-Dri Corporation of America (NYSE:ODC) so let's look a bit deeper.
Understanding 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. The formula for this calculation on Oil-Dri Corporation of America is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$43m ÷ (US$289m - US$52m) (Based on the trailing twelve months to October 2023).
Thus, Oil-Dri Corporation of America has an ROCE of 18%. By itself that's a normal return on capital and it's in line with the industry's average returns of 18%.
View our latest analysis for Oil-Dri Corporation of America
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're interested in investigating Oil-Dri Corporation of America's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Oil-Dri Corporation of America Tell Us?
Oil-Dri Corporation of America is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 47% more capital is being employed now too. So we're very much inspired by what we're seeing at Oil-Dri Corporation of America thanks to its ability to profitably reinvest capital.
The Key Takeaway
All in all, it's terrific to see that Oil-Dri Corporation of America is reaping the rewards from prior investments and is growing its capital base. And a remarkable 182% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
Like most companies, Oil-Dri Corporation of America does come with some risks, and we've found 2 warning signs that you should be aware of.
While Oil-Dri Corporation of America isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
