If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. On that note, looking into United Natural Foods (NYSE:UNFI), we weren't too upbeat about how things were going.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for United Natural Foods, this is the formula:

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

0.018 = US$94m ÷ (US$7.8b - US$2.6b) (Based on the trailing twelve months to October 2023).

Thus, United Natural Foods has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 11%.

Above you can see how the current ROCE for United Natural Foods 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 United Natural Foods .

What Does the ROCE Trend For United Natural Foods Tell Us?

There is reason to be cautious about United Natural Foods, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 4.3% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect United Natural Foods to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that United Natural Foods is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 11% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

United Natural Foods does have some risks though, and we've spotted 1 warning sign for United Natural Foods that you might be interested in.

While United Natural Foods 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.

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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.