Investors Will Want Loblaw Companies' (TSE:L) Growth In ROCE To Persist




  • In Business
  • 2022-12-01 15:25:11Z
  • By Simply Wall St.
 

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Loblaw Companies (TSE:L) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Loblaw Companies, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.11 = CA$3.2b ÷ (CA$38b - CA$9.7b) (Based on the trailing twelve months to October 2022).

So, Loblaw Companies has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

See our latest analysis for Loblaw Companies

In the above chart we have measured Loblaw Companies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Loblaw Companies.

What Does the ROCE Trend For Loblaw Companies Tell Us?

Loblaw Companies' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 27% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Loblaw Companies' ROCE

To bring it all together, Loblaw Companies has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 140% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Loblaw Companies can keep these trends up, it could have a bright future ahead.

Loblaw Companies does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

While Loblaw Companies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

Join A Paid User Research Session
You'll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

COMMENTS

More Related News

Returns On Capital Signal Tricky Times Ahead For Entergy (NYSE:ETR)
Returns On Capital Signal Tricky Times Ahead For Entergy (NYSE:ETR)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key...

Vodacom Group (JSE:VOD) Hasn
Vodacom Group (JSE:VOD) Hasn't Managed To Accelerate Its Returns

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key...

Returns On Capital At Atta Global Group Berhad (KLSE:ATTA) Have Stalled
Returns On Capital At Atta Global Group Berhad (KLSE:ATTA) Have Stalled

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key...

Pan Malaysia Holdings Berhad (KLSE:PMHLDG) May Have Issues Allocating Its Capital
Pan Malaysia Holdings Berhad (KLSE:PMHLDG) May Have Issues Allocating Its Capital

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in...

J.B. Hunt Transport Services (NASDAQ:JBHT) Is Achieving High Returns On Its Capital
J.B. Hunt Transport Services (NASDAQ:JBHT) Is Achieving High Returns On Its Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

  • DNA Supply Chain Solutions
    (2022-12-01 16:47:43Z)

    DNA Supply Chain Solutions d/b/a Amber Worldwide Logistics is an expert company in the carriage of goods by ocean. On a daily basis, we move goods to and from all major worldwide cities in conjunction with our overseas partners, steamship lines and other consolidators. We offer unparalleled service options and flexibility to our clients, including regular full container sizes up to 45' and less than container load service for smaller shipments. All water, landbridge and sea air are available to enhance your choice of service/cost/time options. DNA Supply Chain Solutions d/b/a Amber Worldwide Logistics ocean operations handle refrigerated cargoes, roll on roll off for wheeled or tracked vehicles, flat racks and open tops for oversize fright, bulk liquid or dry tanks. Garment on hanger containers together with breakbulk and bulk shipping vessels for large quantities of non-containerized cargo. From one cubic meter to a complete power station or large project from door anywhere to door anywhere, if it can move by ship, amber worldwide can arrange it for you. We are licensed by the federal maritime commission, c-tpat, dhs/cbp, bonded and insured.

    REPLY
  • Slot Deposit Pulsa
    (2022-12-01 19:17:34Z)

    Your website is really cool and this is a great inspiring article.

    REPLY
  • Naturewell
    (2022-12-03 14:09:31Z)

    Took me time to read all the comments, but I really enjoyed the article. It proved to be Very helpful to me and I am sure to all the commenters here! It’s always nice when you can not only be informed, but also entertained!

    REPLY

Top News: Business