What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Archer-Daniels-Midland's (NYSE:ADM) returns on capital, so let's have a look.

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 Archer-Daniels-Midland is:

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

0.10 = US$3.5b ÷ (US$55b - US$20b) (Based on the trailing twelve months to March 2024).

Thus, Archer-Daniels-Midland has an ROCE of 10.0%. On its own, that's a low figure but it's around the 11% average generated by the Food industry.

Above you can see how the current ROCE for Archer-Daniels-Midland 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 Archer-Daniels-Midland .

What Does the ROCE Trend For Archer-Daniels-Midland Tell Us?

Archer-Daniels-Midland's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 64% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Archer-Daniels-Midland's ROCE

In summary, we're delighted to see that Archer-Daniels-Midland 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 69% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Archer-Daniels-Midland can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Archer-Daniels-Midland you'll probably want to know about.

While Archer-Daniels-Midland isn't earning the highest return, check out this free list of companies that are 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.

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