Darling Ingredients’ returns on capital have not been lacking lately (NYSE: DAR)
Finding a business that has the potential to grow significantly isn’t easy, but it is possible if we take a look at a few key financial metrics. Generally, we will want to notice a growing trend to recover on capital employed (ROCE) and at the same time, a based capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked Cherished ingredients (NYSE: DAR) and its trend of ROCE, we really liked what we saw.
What is Return on Employee Capital (ROCE)?
If you’ve never worked with ROCE before, it measures the âreturnâ (profit before tax) that a business generates on capital employed in its business. The formula for this calculation on Darling Ingredients is:
Return on capital employed = Profit before interest and taxes (EBIT) Ã· (Total assets – Current liabilities)
0.063 = US $ 326 million Ã· (US $ 5.8 billion – US $ 692 million) (Based on the last twelve months up to July 2021).
Thereby, Darling Ingredients has a ROCE of 6.3%. In the end, this is a low yield and it is lower than the food industry average of 9.5%.
NYSE: DAR Return on Capital Employed October 26, 2021
In the chart above, we’ve measured Darling Ingredients past ROCE versus past performance, but arguably the future is more important. If you’d like to see what analysts are forecasting for the future, you should check out our free report for Darling Ingredients.
What does the ROCE trend for Darling ingredients tell us?
Darling Ingredients did not disappoint with the growth in its ROCE. Looking at the data, we can see that although the capital employed in the company has remained relatively stable, the ROCE generated has increased by 80% over the past five years. Basically, the business generates higher returns from the same amount of capital and this is proof that there are improvements in the efficiency of the business. On this front, things are looking good, so it’s worth exploring what management has said about growth plans for the future.
What we can learn from Darling Ingredients ROCE
In summary, we are delighted to see that Darling Ingredients has been able to increase its efficiency and achieve higher rates of return on the same amount of capital. And a remarkable 486% total return over the past five years tells us that investors expect more good things to come in the future. That being said, we still believe promising fundamentals mean the company deserves additional due diligence.
On a separate note, we have found 2 warning signs for Darling Ingredients you will probably want to know more.
If you want to look for solid businesses with great income, check out this free list of companies with good balance sheets and impressive returns on equity.
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