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Returns On Capital At Flowers Foods (NYSE:FLO) Have Stalled

Simply Wall St ·  {{timeTz}}

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Although, when we looked at Flowers Foods (NYSE:FLO), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Flowers Foods, this is the formula:

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

0.13 = US$356m ÷ (US$3.3b - US$570m) (Based on the trailing twelve months to July 2022).

So, Flowers Foods has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.5% generated by the Food industry.

Check out our latest analysis for Flowers Foods

roceNYSE:FLO Return on Capital Employed September 5th 2022

In the above chart we have measured Flowers Foods' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Flowers Foods' ROCE Trend?

Over the past five years, Flowers Foods' ROCE and capital employed have both remained mostly flat. 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. With that in mind, unless investment picks up again in the future, we wouldn't expect Flowers Foods to be a multi-bagger going forward. That probably explains why Flowers Foods has been paying out 71% of its earnings as dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

Our Take On Flowers Foods' ROCE

In a nutshell, Flowers Foods has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has gained an impressive 80% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing, we've spotted 3 warning signs facing Flowers Foods that you might find interesting.

While Flowers 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.

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.

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