We Like These Underlying Return On Capital Trends At GDI Integrated Facility Services (TSE:GDI)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at GDI Integrated Facility Services (TSE:GDI) and its trend of ROCE, we really liked what we saw.

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 GDI Integrated Facility Services:

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

0.099 = CA$85m ÷ (CA$1.2b - CA$376m) (Based on the trailing twelve months to September 2022).

Therefore, GDI Integrated Facility Services has an ROCE of 9.9%. In absolute terms, that's a low return, but it's much better than the Commercial Services industry average of 7.9%.

See our latest analysis for GDI Integrated Facility Services

In the above chart we have measured GDI Integrated Facility Services' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering GDI Integrated Facility Services here for free.

What Does the ROCE Trend For GDI Integrated Facility Services Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 129% more capital is being employed now too. So we're very much inspired by what we're seeing at GDI Integrated Facility Services thanks to its ability to profitably reinvest capital.

In Conclusion...

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 GDI Integrated Facility Services has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with GDI Integrated Facility Services (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

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.