Return trends at Tyson Foods (NYSE:TSN) look promising
Did you know that there are financial metrics that can provide clues to a potential multi-bagger? First, we’ll want to see proof come back on capital employed (ROCE) which is increasing, and on the other hand, a base capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. So when we looked Tyson Foods (NYSE:TSN) and its ROCE trend, we really liked what we saw.
Return on capital employed (ROCE): what is it?
For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. Analysts use this formula to calculate it for Tyson Foods:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.19 = $6.0 billion ÷ ($36 billion – $4.7 billion) (Based on the last twelve months to July 2022).
So, Tyson Foods has a ROCE of 19%. In itself, this is a standard yield, but it is much better than the 9.8% generated by the food industry.
Check out our latest analysis for Tyson Foods
In the chart above, we measured Tyson Foods past ROCE against past performance, but the future is arguably more important. If you want, you can check out forecasts from analysts covering Tyson Foods here for free.
The ROCE trend
Investors would be thrilled with what’s happening at Tyson Foods. Figures show that over the past five years, returns generated on capital employed have increased significantly to 19%. Basically, the business earns more per dollar of invested capital and on top of that, 30% more capital is also utilized now. So we’re very inspired by what we’re seeing at Tyson Foods with its ability to reinvest capital profitably.
A business that increases its returns on capital and can constantly reinvest in itself is a highly sought after trait, and that is what Tyson Foods possesses. Given that the stock has returned 40% to its shareholders over the past five years, it may be fair to assume that investors are not yet fully aware of the promising trends. So exploring this stock further could uncover a good opportunity, if valuation and other metrics stack up.
If you want to know the risks Tyson Foods faces, we found out 1 warning sign of which you should be aware.
If you want to look for strong companies with excellent earnings, check out this free list of companies with strong balance sheets and impressive returns on equity.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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