Shareholders Would Enjoy A Repeat Of Enerpac Tool Group's (NYSE:EPAC) Recent Growth In Returns
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in Enerpac Tool Group's (NYSE:EPAC) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
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 Enerpac Tool Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = US$129m ÷ (US$766m - US$127m) (Based on the trailing twelve months to November 2023).
So, Enerpac Tool Group has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Machinery industry average of 13%.
See our latest analysis for Enerpac Tool Group
Above you can see how the current ROCE for Enerpac Tool Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Enerpac Tool Group.
What Does the ROCE Trend For Enerpac Tool Group Tell Us?
Enerpac Tool Group has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 292%. The company is now earning US$0.2 per dollar of capital employed. In regards to capital employed, Enerpac Tool Group appears to been achieving more with less, since the business is using 43% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
Our Take On Enerpac Tool Group's ROCE
In a nutshell, we're pleased to see that Enerpac Tool Group has been able to generate higher returns from less capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 32% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
One more thing, we've spotted 1 warning sign facing Enerpac Tool Group that you might find interesting.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.
