Nutrien (TSE:NTR) Shareholders Will Want The ROCE Trajectory To Continue

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at Nutrien (TSE:NTR) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Nutrien is:

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

0.15 = US$6.1b ÷ (US$54b - US$13b) (Based on the trailing twelve months to June 2023).

Thus, Nutrien has an ROCE of 15%. By itself that's a normal return on capital and it's in line with the industry's average returns of 15%.

Check out our latest analysis for Nutrien

Above you can see how the current ROCE for Nutrien compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Nutrien here for free.

How Are Returns Trending?

Nutrien has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 253% 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

In summary, we're delighted to see that Nutrien has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 41% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Nutrien, we've spotted 4 warning signs, and 1 of them is concerning.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.