U.S. markets open in 5 hours 24 minutes
  • S&P Futures

    3,990.25
    +13.50 (+0.34%)
     
  • Dow Futures

    32,189.00
    +113.00 (+0.35%)
     
  • Nasdaq Futures

    11,963.25
    +21.00 (+0.18%)
     
  • Russell 2000 Futures

    1,805.70
    +8.90 (+0.50%)
     
  • Crude Oil

    111.11
    +0.78 (+0.71%)
     
  • Gold

    1,846.50
    +0.20 (+0.01%)
     
  • Silver

    21.86
    -0.01 (-0.02%)
     
  • EUR/USD

    1.0687
    +0.0002 (+0.02%)
     
  • 10-Yr Bond

    2.7490
    0.0000 (0.00%)
     
  • Vix

    28.19
    -1.26 (-4.28%)
     
  • GBP/USD

    1.2584
    +0.0005 (+0.04%)
     
  • USD/JPY

    126.6390
    -0.6020 (-0.47%)
     
  • BTC-USD

    29,678.00
    +59.23 (+0.20%)
     
  • CMC Crypto 200

    655.13
    -15.87 (-2.37%)
     
  • FTSE 100

    7,540.96
    +18.21 (+0.24%)
     
  • Nikkei 225

    26,604.84
    -72.96 (-0.27%)
     

We Like These Underlying Return On Capital Trends At Unifi (NYSE:UFI)

  • Oops!
    Something went wrong.
    Please try again later.
·2 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So on that note, Unifi (NYSE:UFI) 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. Analysts use this formula to calculate it for Unifi:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.13 = US$61m ÷ (US$549m - US$100m) (Based on the trailing twelve months to September 2021).

So, Unifi has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 14% generated by the Luxury industry.

Check out our latest analysis for Unifi

roce
roce

In the above chart we have measured Unifi's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Unifi.

So How Is Unifi's ROCE Trending?

Unifi is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 34% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Unifi's ROCE

In summary, we're delighted to see that Unifi has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 25% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

While Unifi looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether UFI is currently trading for a fair price.

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.