Shareholders Would Enjoy A Repeat Of Creightons' (LON:CRL) Recent Growth In Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Creightons' (LON:CRL) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Creightons is:

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

0.26 = UK£6.1m ÷ (UK£34m - UK£9.9m) (Based on the trailing twelve months to March 2021).

Thus, Creightons has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 9.9%.

Check out our latest analysis for Creightons

Historical performance is a great place to start when researching a stock so above you can see the gauge for Creightons' ROCE against it's prior returns. If you're interested in investigating Creightons' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Creightons' ROCE Trending?

We like the trends that we're seeing from Creightons. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 26%. Basically the business is earning more per dollar of capital invested and in addition to that, 230% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Creightons' 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 Creightons has. And a remarkable 648% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Creightons can keep these trends up, it could have a bright future ahead.

If you want to continue researching Creightons, you might be interested to know about the 3 warning signs that our analysis has discovered.

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.

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.

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