If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Premier Foods (LON:PFD) and its trend of ROCE, we really liked what we saw.

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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 Premier Foods, this is the formula:

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

0.091 = UK£181m ÷ (UK£2.3b - UK£270m) (Based on the trailing twelve months to March 2025).

Thus, Premier Foods has an ROCE of 9.1%.  In absolute terms, that's a low return and it also under-performs the Food industry average of 12%.

See our latest analysis for Premier Foods LSE:PFD Return on Capital Employed July 31st 2025

In the above chart we have measured Premier Foods' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Premier Foods  for free.

So How Is Premier Foods' ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Premier Foods. The data shows that returns on capital have increased by 157% over the trailing five years. The company is now earning UK£0.09 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 26% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

Our Take On Premier Foods' ROCE

From what we've seen above, Premier Foods has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a staggering 140% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Premier Foods looks impressive, no company is worth an infinite price. The  intrinsic value infographic for PFD helps visualize whether it is currently trading for a fair price.

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If you want to search for solid companies with great earnings, check out this freelist of companies with good balance sheets and impressive 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.

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