In This Article:
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, the ROCE of Oil-Dri Corporation of America (NYSE:ODC) looks great, so lets see what the trend can tell us.
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. Analysts use this formula to calculate it for Oil-Dri Corporation of America:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = US$60m ÷ (US$350m - US$55m) (Based on the trailing twelve months to October 2024).
Therefore, Oil-Dri Corporation of America has an ROCE of 20%. In absolute terms that's a very respectable return and compared to the Household Products industry average of 18% it's pretty much on par.
See 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Oil-Dri Corporation of America.
So How Is Oil-Dri Corporation of America's ROCE Trending?
We like the trends that we're seeing from Oil-Dri Corporation of America. Over the last five years, returns on capital employed have risen substantially to 20%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 64%. 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.
Our Take On Oil-Dri Corporation of America's ROCE
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 176% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.