Inghams Group's (ASX:ING) Returns On Capital: A Closer Look

Inghams Group (ASX:ING) has been in the spotlight recently, with investors and analysts alike scrutinizing the company's financial performance. One metric that has caught the eye of many is the company's Return on Capital Employed (ROCE), which has been on a downward trend over the past five years. In this article, we'll take a closer look at Inghams Group's ROCE and explore the factors contributing to its decline.



Inghams Group's ROCE has fallen from a high of 23% in 2018 to a current level of 12%. While this decline may seem concerning, it's essential to consider the context and the company's strategic objectives. Inghams Group has been actively pursuing growth and expansion, which has led to an increase in capital employed and revenue. However, this focus on growth has temporarily impacted short-term returns, as reflected in the decrease in ROCE.



Several factors contribute to Inghams Group's declining ROCE:

1. Increased Capital Employed: Inghams Group has significantly increased its capital employed, investing more in the business to drive growth. This increased investment can lead to a decrease in ROCE if the returns on this additional capital are not as high as the original returns.
2. Decrease in EBIT Margin: The earnings before interest and tax (EBIT) margin has decreased over the past five years. This means that the company's operating profits as a percentage of revenue have decreased, which can lead to a decrease in ROCE.
3. Increased Current Liabilities: While Inghams Group has paid down some of its current liabilities, the overall level of current liabilities has increased as a percentage of total assets. This can lead to a decrease in ROCE as the company is relying more on short-term debt to fund its operations.

Despite these factors, Inghams Group's ROCE remains relatively normal at 12%, around the industry average of 11%. Moreover, the company's focus on growth and expansion suggests that the increased capital employed may generate higher returns in the long run.



In conclusion, Inghams Group's declining ROCE is a result of the company's strategic focus on growth and expansion. While the short-term returns may have been impacted, the increased capital employed and revenue growth suggest that the company is well-positioned for long-term success. Investors should consider the context and the company's strategic objectives when evaluating its financial performance. As always, it's essential to stay informed and make investment decisions based on thorough research and analysis.