If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Altria Group (NYSE:MO) we really liked what we saw.

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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. The formula for this calculation on Altria Group is:

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

0.46 = US$12b ÷ (US$35b - US$8.8b) (Based on the trailing twelve months to December 2024).

Thus, Altria Group has an ROCE of 46%. In absolute terms that's a great return and it's even better than the Tobacco industry average of 20%.

Check out our latest analysis for Altria Group

Above you can see how the current ROCE for Altria Group 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 Altria Group .

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Altria Group. The figures show that over the last five years, returns on capital have grown by 74%. The company is now earning US$0.5 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 36% less capital than it was five years ago. Altria Group may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

What We Can Learn From Altria Group's ROCE

In the end, Altria Group has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a staggering 118% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Altria Group can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for Altria Group (1 doesn't sit too well with us) you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.