Investors will want Koninklijke Ahold Delhaize (AMS: AD) ROCE growth to persist


Did you know that certain financial measures can provide clues about a potential multi-bagger? First, we will want to see a to recover on capital employed (ROCE) which increases and, on the other hand, a based capital employed. Ultimately, this demonstrates that this is a company that is reinvesting its profits at increasing rates of return. Speaking of which, we noticed some big changes in Koninklijke Ahold Delhaize (AMS: AD) returns on capital, so let’s take a look.

Understanding Return on Capital Employed (ROCE)

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Koninklijke Ahold Delhaize is:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.13 = € 3.9bn ÷ (€ 46bn – € 16bn) (Based on the last twelve months up to October 2021).

Thereby, Koninklijke Ahold Delhaize has a ROCE of 13%. In absolute terms, this is a fairly normal return, and it is somewhat close to the consumer retail industry average of 12%.

See our latest review for Koninklijke Ahold Delhaize

ENXTAM: AD Feedback on Employed Capital on November 24, 2021

In the table above, we measured Koninklijke Ahold Delhaize’s forward ROCE against its forward performance, but the future is arguably more important. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.

What can we say about the ROCE trend of Koninklijke Ahold Delhaize?

We love the trends we see at Koninklijke Ahold Delhaize. Over the past five years, returns on capital employed have increased substantially to 13%. Basically the business is making more per dollar of capital invested and on top of that 23% more capital is also being used up now. We are therefore very inspired by what we see at Koninklijke Ahold Delhaize through its ability to reinvest capital profitably.

Koninklijke Ahold Delhaize’s ROCE result

In summary, it’s great to see that Koninklijke Ahold Delhaize can increase returns by systematically reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought-after multi-baggers. And investors seem to expect more of that in the future, as the stock has rewarded shareholders with a 95% return over the past five years. That being said, we still believe that promising fundamentals mean the company deserves additional due diligence.

On a final note, we found 2 warning signs for Koninklijke Ahold Delhaize that we think you should be aware of.

For those who like to invest in solid companies, Check it out free list of companies with strong balance sheets and high returns on equity.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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