There's Been No Shortage Of Growth Recently For Schwager's (SNSE:SCHWAGER) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. With that in mind, we've noticed some promising trends at Schwager (SNSE:SCHWAGER) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Schwager:

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

0.17 = CL$6.7b ÷ (CL$61b - CL$21b) (Based on the trailing twelve months to March 2024).

So, Schwager has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 13% generated by the Commercial Services industry.

View our latest analysis for Schwager

Historical performance is a great place to start when researching a stock so above you can see the gauge for Schwager's ROCE against it's prior returns. If you'd like to look at how Schwager has performed in the past in other metrics, you can view this free graph of Schwager's past earnings, revenue and cash flow.

What Can We Tell From Schwager's ROCE Trend?

The trends we've noticed at Schwager are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 38% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Schwager's ROCE

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 Schwager has. Since the stock has returned a staggering 112% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Schwager does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

While Schwager 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.