The Return Trends At United States Lime & Minerals (NASDAQ:USLM) Look Promising
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in United States Lime & Minerals' (NASDAQ:USLM) returns on capital, so let's have a look.
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. 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)
0.15 = US$52m ÷ (US$356m - US$15m) (Based on the trailing twelve months to September 2022).
Therefore, United States Lime & Minerals has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 9.1% it's much better.
See our latest analysis for United States Lime & Minerals
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how United States Lime & Minerals has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
The trends we've noticed at United States Lime & Minerals are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. 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 59%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Key Takeaway
To sum it up, United States Lime & Minerals has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 98% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Like most companies, United States Lime & Minerals does come with some risks, and we've found 1 warning sign that you should be aware of.
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.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
