Investors Shouldn't Overlook Global Industrial's (NYSE:GIC) Impressive Returns On Capital

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. 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. And in light of that, the trends we're seeing at Global Industrial's (NYSE:GIC) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Global Industrial:

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

0.31 = US$94m ÷ (US$462m - US$156m) (Based on the trailing twelve months to March 2023).

Therefore, Global Industrial has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 14%.

View our latest analysis for Global Industrial

Above you can see how the current ROCE for Global Industrial 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 Global Industrial.

So How Is Global Industrial's ROCE Trending?

Global Industrial is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 31%. 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 34%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

To sum it up, Global Industrial has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 15% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing to note, we've identified 1 warning sign with Global Industrial and understanding this should be part of your investment process.

Global Industrial is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.