NRW Holdings (ASX:NWH) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in NRW Holdings' (ASX:NWH) returns on capital, so let's have a look.

Our free stock report includes 1 warning sign investors should be aware of before investing in NRW Holdings. Read for free now.

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. To calculate this metric for NRW Holdings, this is the formula:

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

0.16 = AU$169m ÷ (AU$1.8b - AU$714m) (Based on the trailing twelve months to December 2024).

Therefore, NRW Holdings has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Construction industry average of 17%.

View our latest analysis for NRW Holdings

Above you can see how the current ROCE for NRW Holdings 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 analyst report for NRW Holdings .

How Are Returns Trending?

NRW Holdings is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 53%. So we're very much inspired by what we're seeing at NRW Holdings thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that NRW Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 125% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 1 warning sign for NRW Holdings that we think you should be aware of.

While NRW Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.