Returns On Capital Are Showing Encouraging Signs At United States Lime & Minerals (NASDAQ:USLM)
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, United States Lime & Minerals (NASDAQ:USLM) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on United States Lime & Minerals is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$64m ÷ (US$388m - US$19m) (Based on the trailing twelve months to March 2023).
Therefore, United States Lime & Minerals has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 11% it's much better.
See 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.
The Trend Of ROCE
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 17%. The amount of capital employed has increased too, by 65%. So we're very much inspired by what we're seeing at United States Lime & Minerals thanks to its ability to profitably reinvest capital.
The Bottom Line On United States Lime & Minerals' ROCE
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. And a remarkable 147% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a separate note, we've found 1 warning sign for United States Lime & Minerals you'll probably want to know about.
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.
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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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