Investors encountered slowing returns on capital at Church & Dwight (NYSE: CHD)

To find multi-bagger stock, what are the underlying trends we need to look for in a business? First, we will want to see a to return to on capital employed (ROCE) which increases and, on the other hand, a based capital employed. Simply put, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. Therefore, when we briefly examined Church and Dwight (NYSE: CHD) Trend ROCE, we were pretty happy with what we saw.

What is Return on Employee Capital (ROCE)?

If you’ve never worked with ROCE before, it measures the “return” (profit before tax) that a business generates on capital employed in its business. To calculate this metric for Church & Dwight, here is the formula:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.17 = $ 973 million ÷ ($ 7.4 billion – $ 1.6 billion) (Based on the last twelve months up to September 2021).

So, Church & Dwight has a ROCE of 17%. This is a relatively normal return on capital, and it is around the 15% generated by the household products industry.

NYSE: CHD Return on capital employed December 22, 2021

In the chart above, we’ve measured Church & Dwight’s past ROCE against past performance, but arguably the future is more important. If you’d like to see what analysts are forecasting for the future, you should check out our free report for Church & Dwight.

The ROCE trend

The ROCE trend doesn’t stand out much, but overall returns are okay. Over the past five years, ROCE has remained relatively stable at around 17% and the company has deployed 66% additional capital in its operations. 17% is a pretty standard return, and it’s reassuring knowing that Church & Dwight has always earned that amount. Over long periods of time, returns like these may not be very exciting, but with consistency, they can be profitable in terms of stock price performance.

In conclusion…

In short, Church & Dwight simply reinvested capital regularly, at these decent rates of return. And long-term investors would be delighted with the 134% return they’ve received over the past five years. So while investors seem to recognize these promising trends, we still believe the stock deserves further research.

One last thing to note, we have identified 2 warning signs with Church & Dwight and understanding them should be part of your investment process.

For those who like to invest in solid companies, Check it out free list of companies with strong balance sheets and high returns on equity.

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Jerry B. Hatch