Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Ingles Markets' (NASDAQ:IMKT.A) returns on capital, so let's have a look.

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

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. Analysts use this formula to calculate it for Ingles Markets:

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

0.14 = US$290m ÷ (US$2.5b - US$331m) (Based on the trailing twelve months to September 2023).

Thus, Ingles Markets has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Consumer Retailing industry average of 9.7% it's much better.

View our latest analysis for Ingles Markets

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ingles Markets' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Ingles Markets, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Ingles Markets is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 14%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 37%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Ingles Markets has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Ingles Markets looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether IMKT.A is currently trading for a fair price.