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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So while Delfi (SGX:P34) has a high ROCE right now, lets see what we can decipher from how returns are changing.
Return On Capital Employed (ROCE): What Is It?
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 Delfi is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = US$56m ÷ (US$403m - US$128m) (Based on the trailing twelve months to June 2024).
Therefore, Delfi has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Food industry average of 9.0%.
Check out our latest analysis for Delfi
Above you can see how the current ROCE for Delfi compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Delfi .
So How Is Delfi's ROCE Trending?
There hasn't been much to report for Delfi's 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. Although current returns are high, we'd need more evidence of underlying growth for it to look like a multi-bagger going forward. With fewer investment opportunities, it makes sense that Delfi has been paying out a decent 57% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
What We Can Learn From Delfi's ROCE
In summary, Delfi isn't compounding its earnings but is generating decent returns on the same amount of capital employed. And investors may be recognizing these trends since the stock has only returned a total of 3.0% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.