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There Are Reasons To Feel Uneasy About Rogers Sugar's (TSE:RSI) Returns On Capital

·2-min read

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after briefly looking over the numbers, we don't think Rogers Sugar (TSE:RSI) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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 Rogers Sugar, this is the formula:

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

0.11 = CA$89m ÷ (CA$907m - CA$132m) (Based on the trailing twelve months to April 2022).

Thus, Rogers Sugar has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.1% generated by the Food industry.

View our latest analysis for Rogers Sugar

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Above you can see how the current ROCE for Rogers Sugar compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Rogers Sugar Tell Us?

When we looked at the ROCE trend at Rogers Sugar, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 11% from 17% five years ago. However it looks like Rogers Sugar 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.

The Bottom Line

To conclude, we've found that Rogers Sugar is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 35% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about Rogers Sugar, we've spotted 3 warning signs, and 1 of them is concerning.

While Rogers Sugar isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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