We Like These Underlying Return On Capital Trends At Rush Enterprises (NASDAQ:RUSH.B)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Rush Enterprises' (NASDAQ:RUSH.B) returns on capital, so let's have a look.

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. To calculate this metric for Rush Enterprises, this is the formula:

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

0.088 = US$174m ÷ (US$3.0b - US$1.0b) (Based on the trailing twelve months to March 2021).

Thus, Rush Enterprises has an ROCE of 8.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.2%.

View our latest analysis for Rush Enterprises

In the above chart we have measured Rush Enterprises' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Rush Enterprises here for free.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 8.8%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 24%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Rush Enterprises' 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 Rush Enterprises has. And a remarkable 217% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 3 warning signs facing Rush Enterprises that you might find interesting.

While Rush Enterprises 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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