There's Been No Shortage Of Growth Recently For Cobram Estate Olives' (ASX:CBO) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Cobram Estate Olives (ASX:CBO) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Cobram Estate Olives:

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

0.05 = AU$27m ÷ (AU$616m - AU$73m) (Based on the trailing twelve months to December 2023).

So, Cobram Estate Olives has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 12%.

Check out our latest analysis for Cobram Estate Olives

roce

In the above chart we have measured Cobram Estate Olives' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Cobram Estate Olives for free.

So How Is Cobram Estate Olives' ROCE Trending?

Cobram Estate Olives has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 5.0% which is a sight for sore eyes. In addition to that, Cobram Estate Olives is employing 88% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Cobram Estate Olives' ROCE

To the delight of most shareholders, Cobram Estate Olives has now broken into profitability. And with a respectable 30% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, Cobram Estate Olives does come with some risks, and we've found 1 warning sign that you should be aware of.

While Cobram Estate Olives 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.