The Trend Of High Returns At John B. Sanfilippo & Son (NASDAQ:JBSS) Has Us Very Interested
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of John B. Sanfilippo & Son (NASDAQ:JBSS) we really liked what we saw.
What is 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 John B. Sanfilippo & Son, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.25 = US$75m ÷ (US$407m - US$112m) (Based on the trailing twelve months to June 2020).
Thus, John B. Sanfilippo & Son has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 8.3% earned by companies in a similar industry.
See our latest analysis for John B. Sanfilippo & Son
Above you can see how the current ROCE for John B. Sanfilippo & Son compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for John B. Sanfilippo & Son.
So How Is John B. Sanfilippo & Son's ROCE Trending?
John B. Sanfilippo & Son has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 54% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Bottom Line On John B. Sanfilippo & Son's ROCE
In summary, we're delighted to see that John B. Sanfilippo & Son has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 83% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you'd like to know more about John B. Sanfilippo & Son, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
This article by Simply Wall St is general in nature. 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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