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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Speaking of which, we noticed some great changes in Altria Group's (NYSE:MO) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Altria Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.48 = US$12b ÷ (US$36b - US$11b) (Based on the trailing twelve months to March 2025).
So, Altria Group has an ROCE of 48%. In absolute terms that's a great return and it's even better than the Tobacco industry average of 19%.
View our latest analysis for Altria Group
In the above chart we have measured Altria Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Altria Group for free.
What Does the ROCE Trend For Altria Group Tell Us?
You'd find it hard not to be impressed with the ROCE trend at Altria Group. We found that the returns on capital employed over the last five years have risen by 77%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 39% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.
What We Can Learn From Altria Group's ROCE
In summary, it's great to see that Altria Group has been able to turn things around and earn higher returns on lower amounts of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.