Nutrien's (TSE:NTR) Returns On Capital Are Heading Higher

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. 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 Nutrien's (TSE:NTR) returns on capital, so let's have a look.

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. To calculate this metric for Nutrien, this is the formula:

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

0.12 = US$4.8b ÷ (US$52b - US$11b) (Based on the trailing twelve months to September 2023).

Thus, Nutrien has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Chemicals industry average of 14%.

Check out our latest analysis for Nutrien

In the above chart we have measured Nutrien'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 report for Nutrien.

What Does the ROCE Trend For Nutrien Tell Us?

Nutrien has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 132% 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 Bottom Line

To bring it all together, Nutrien has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 27% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we've found 3 warning signs for Nutrien that we think you should be aware of.

While Nutrien 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.