If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, United States Lime & Minerals (NASDAQ:USLM) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you’re unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for United States Lime & Minerals:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.19 = US$79m ÷ (US$424m – US$16m) (Based on the trailing twelve months to September 2023).
So, United States Lime & Minerals has an ROCE of 19%. In absolute terms, that’s a satisfactory return, but compared to the Basic Materials industry average of 11% it’s much better.
View our latest analysis for United States Lime & Minerals
Historical performance is a great place to start when researching a stock so above you can see the gauge for United States Lime & Minerals’ ROCE against it’s prior returns. If you want to delve into the historical earnings, revenue and cash flow of United States Lime & Minerals, check out these free graphs here.
So How Is United States Lime & Minerals’ ROCE Trending?
We like the trends that we’re seeing from United States Lime & Minerals. The data shows that returns on capital have increased substantially over the last five years to 19%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 74%. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, a combination that’s common among multi-baggers.
The Bottom Line
All in all, it’s terrific to see that United States Lime & Minerals is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you’d like to know about the risks facing United States Lime & Minerals, we’ve discovered 1 warning sign that you should be aware of.
While United States Lime & Minerals may not currently earn the highest returns, we’ve compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
