There's Been No Shortage Of Growth Recently For Fresh Del Monte Produce's (NYSE:FDP) Returns On Capital
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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Fresh Del Monte Produce's (NYSE:FDP) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Fresh Del Monte Produce, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.063 = US$174m ÷ (US$3.3b - US$578m) (Based on the trailing twelve months to September 2023).
Therefore, Fresh Del Monte Produce has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Food industry average of 10%.
View our latest analysis for Fresh Del Monte Produce
Above you can see how the current ROCE for Fresh Del Monte Produce 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 Fresh Del Monte Produce here for free.
The Trend Of ROCE
Fresh Del Monte Produce has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 72% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
What We Can Learn From Fresh Del Monte Produce's ROCE
To bring it all together, Fresh Del Monte Produce has done well to increase the returns it's generating from its capital employed. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.
One final note, you should learn about the 2 warning signs we've spotted with Fresh Del Monte Produce (including 1 which can't be ignored) .
While Fresh Del Monte Produce 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.
