We Like These Underlying Return On Capital Trends At Element Fleet Management (TSE:EFN)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Element Fleet Management's (TSE:EFN) returns on capital, so let's have a look.

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

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 Element Fleet Management, this is the formula:

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

0.092 = US$1.1b ÷ (US$14b - US$2.2b) (Based on the trailing twelve months to June 2025).

So, Element Fleet Management has an ROCE of 9.2%. Even though it's in line with the industry average of 9.4%, it's still a low return by itself.

View our latest analysis for Element Fleet Management

In the above chart we have measured Element Fleet Management'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 analyst report for Element Fleet Management .

How Are Returns Trending?

Element Fleet Management's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 182% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

In summary, we're delighted to see that Element Fleet Management has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 242% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Element Fleet Management can keep these trends up, it could have a bright future ahead.

If you want to continue researching Element Fleet Management, you might be interested to know about the 1 warning sign that our analysis has discovered.

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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.