Cracker Barrel Old Country Store (NASDAQ:CBRL) Is Reinvesting At Lower Rates Of Return

Simply Wall St · 10/17 10:17

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Cracker Barrel Old Country Store (NASDAQ:CBRL) and its ROCE trend, we weren't exactly thrilled.

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 Cracker Barrel Old Country Store:

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

0.043 = US$73m ÷ (US$2.2b - US$454m) (Based on the trailing twelve months to August 2024).

So, Cracker Barrel Old Country Store has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 10%.

Check out our latest analysis for Cracker Barrel Old Country Store

roce
NasdaqGS:CBRL Return on Capital Employed October 17th 2024

Above you can see how the current ROCE for Cracker Barrel Old Country Store 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 analyst report for Cracker Barrel Old Country Store .

What Can We Tell From Cracker Barrel Old Country Store's ROCE Trend?

In terms of Cracker Barrel Old Country Store's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 24%, but since then they've fallen to 4.3%. However it looks like Cracker Barrel Old Country Store might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Cracker Barrel Old Country Store's ROCE

To conclude, we've found that Cracker Barrel Old Country Store is reinvesting in the business, but returns have been falling. Since the stock has declined 64% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know about the risks facing Cracker Barrel Old Country Store, we've discovered 4 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.