Returns At Lindsay Australia (ASX:LAU) Are On The Way Up

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Lindsay Australia (ASX:LAU) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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 Lindsay Australia:

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

0.14 = AU$42m ÷ (AU$428m - AU$128m) (Based on the trailing twelve months to December 2022).

Therefore, Lindsay Australia has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 7.3% it's much better.

See our latest analysis for Lindsay Australia

Above you can see how the current ROCE for Lindsay Australia 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 Lindsay Australia.

What Can We Tell From Lindsay Australia's ROCE Trend?

Investors would be pleased with what's happening at Lindsay Australia. The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 70%. So we're very much inspired by what we're seeing at Lindsay Australia thanks to its ability to profitably reinvest capital.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Lindsay Australia has. And a remarkable 280% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Lindsay Australia can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Lindsay Australia that we think you should be aware of.

While Lindsay Australia 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.