Yahoo Finance Whole Earth Brands (NASDAQ:FREE) Will Want To Turn Around Its Return Trends
There are a few key trends to look for if we want to identify the next multi-bagger. 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. However, after briefly looking over the numbers, we don't think Whole Earth Brands (NASDAQ:FREE) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
What Is 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 Whole Earth Brands, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.02 = US$15m ÷ (US$825m - US$94m) (Based on the trailing twelve months to September 2023).
Therefore, Whole Earth Brands has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Food industry average of 10%.
See our latest analysis for Whole Earth Brands
Above you can see how the current ROCE for Whole Earth Brands compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Whole Earth Brands here for free.
What Does the ROCE Trend For Whole Earth Brands Tell Us?
On the surface, the trend of ROCE at Whole Earth Brands doesn't inspire confidence. Over the last three years, returns on capital have decreased to 2.0% from 3.9% three years ago. However it looks like Whole Earth Brands might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
Our Take On Whole Earth Brands' ROCE
In summary, Whole Earth Brands is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 66% in the last three years. 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.
On a separate note, we've found 2 warning signs for Whole Earth Brands you'll probably want to know about.
While Whole Earth Brands isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
