If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Cal-Maine Foods' (NASDAQ:CALM) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Cal-Maine Foods, this is the formula:

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

0.25 = US$506m ÷ (US$2.4b - US$325m) (Based on the trailing twelve months to August 2024).

Thus, Cal-Maine Foods has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Food industry average of 11%.

See our latest analysis for Cal-Maine Foods

Above you can see how the current ROCE for Cal-Maine Foods compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Cal-Maine Foods .

What Can We Tell From Cal-Maine Foods' ROCE Trend?

Cal-Maine Foods has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 25% on its capital. And unsurprisingly, like most companies trying to break into the black, Cal-Maine Foods is utilizing 102% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On Cal-Maine Foods' ROCE

In summary, it's great to see that Cal-Maine Foods has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 180% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Cal-Maine Foods does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

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.

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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.