Rush Enterprises' (NASDAQ:RUSH.A) Returns On Capital Are Heading Higher

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Rush Enterprises (NASDAQ:RUSH.A) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Rush Enterprises is:

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

0.16 = US$475m ÷ (US$4.6b - US$1.8b) (Based on the trailing twelve months to September 2024).

So, Rush Enterprises has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Trade Distributors industry average of 12% it's much better.

See our latest analysis for Rush Enterprises

Above you can see how the current ROCE for Rush Enterprises compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Rush Enterprises .

What Can We Tell From Rush Enterprises' ROCE Trend?

We like the trends that we're seeing from Rush Enterprises. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. The amount of capital employed has increased too, by 54%. So we're very much inspired by what we're seeing at Rush Enterprises thanks to its ability to profitably reinvest capital.

What We Can Learn From Rush Enterprises' ROCE

In summary, it's great to see that Rush Enterprises can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 250% 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 Rush Enterprises can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Rush Enterprises you'll probably want to know about.

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.