Investors Will Want Chart Industries' (NYSE:GTLS) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Speaking of which, we noticed some great changes in Chart Industries' (NYSE:GTLS) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Chart Industries:

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

0.08 = US$586m ÷ (US$9.3b - US$1.9b) (Based on the trailing twelve months to June 2024).

Thus, Chart Industries has an ROCE of 8.0%. Ultimately, that's a low return and it under-performs the Machinery industry average of 13%.

Check out our latest analysis for Chart Industries

Above you can see how the current ROCE for Chart Industries 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 analyst report for Chart Industries .

So How Is Chart Industries' ROCE 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. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.0%. The amount of capital employed has increased too, by 351%. So we're very much inspired by what we're seeing at Chart Industries thanks to its ability to profitably reinvest capital.

The Bottom Line On Chart Industries' ROCE

To sum it up, Chart Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 93% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One final note, you should learn about the 2 warning signs we've spotted with Chart Industries (including 1 which is a bit unpleasant) .

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.