A Look Into Kuehne + Nagel International's (VTX:KNIN) Impressive Returns On Capital

What are the early trends we should look for to identify a stock that could 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Kuehne + Nagel International (VTX:KNIN), we liked what we saw.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Kuehne + Nagel International:

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

0.33 = CHF2.0b ÷ (CHF13b - CHF7.0b) (Based on the trailing twelve months to September 2021).

So, Kuehne + Nagel International has an ROCE of 33%. That's a fantastic return and not only that, it outpaces the average of 9.3% earned by companies in a similar industry.

See our latest analysis for Kuehne + Nagel International

Above you can see how the current ROCE for Kuehne + Nagel International 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 Kuehne + Nagel International.

How Are Returns Trending?

In terms of Kuehne + Nagel International's history of ROCE, it's quite impressive. The company has consistently earned 33% for the last five years, and the capital employed within the business has risen 130% in that time. Now considering ROCE is an attractive 33%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Kuehne + Nagel International can keep this up, we'd be very optimistic about its future.

On a separate but related note, it's important to know that Kuehne + Nagel International has a current liabilities to total assets ratio of 53%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

Kuehne + Nagel International has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 113% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to know some of the risks facing Kuehne + Nagel International we've found 2 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.