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Maple Leaf Foods (TSE:MFI) Has Some Way To Go To Become A Multi-Bagger

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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? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Maple Leaf Foods (TSE:MFI) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Maple Leaf Foods:

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

0.082 = CA$292m ÷ (CA$4.2b - CA$620m) (Based on the trailing twelve months to June 2021).

Thus, Maple Leaf Foods has an ROCE of 8.2%. In absolute terms, that's a low return but it's around the Food industry average of 8.6%.

Check out our latest analysis for Maple Leaf Foods

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Above you can see how the current ROCE for Maple Leaf 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 report for Maple Leaf Foods.

So How Is Maple Leaf Foods' ROCE Trending?

There are better returns on capital out there than what we're seeing at Maple Leaf Foods. Over the past five years, ROCE has remained relatively flat at around 8.2% and the business has deployed 51% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Maple Leaf Foods' ROCE

In conclusion, Maple Leaf Foods has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Maple Leaf Foods (including 1 which can't be ignored) .

While Maple Leaf 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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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