Commercial Vehicle Group (NASDAQ:CVGI) Has More To Do To Multiply In Value Going Forward
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Commercial Vehicle Group's (NASDAQ:CVGI) trend of ROCE, we liked what we saw.
What Is 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. The formula for this calculation on Commercial Vehicle Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = US$38m ÷ (US$557m - US$193m) (Based on the trailing twelve months to June 2022).
So, Commercial Vehicle Group has an ROCE of 10%. That's a pretty standard return and it's in line with the industry average of 10%.
View our latest analysis for Commercial Vehicle Group
Above you can see how the current ROCE for Commercial Vehicle Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is Commercial Vehicle Group's ROCE Trending?
While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 10% and the business has deployed 39% more capital into its operations. 10% is a pretty standard return, and it provides some comfort knowing that Commercial Vehicle Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Key Takeaway
The main thing to remember is that Commercial Vehicle Group has proven its ability to continually reinvest at respectable rates of return. Yet over the last five years the stock has declined 52%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
One final note, you should learn about the 2 warning signs we've spotted with Commercial Vehicle Group (including 1 which is a bit unpleasant) .
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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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