A Look Into W.W. Grainger's (NYSE:GWW) Impressive Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. That's why when we briefly looked at W.W. Grainger's (NYSE:GWW) ROCE trend, we were very happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for W.W. Grainger, this is the formula:

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

0.39 = US$2.6b ÷ (US$9.1b - US$2.4b) (Based on the trailing twelve months to September 2024).

So, W.W. Grainger has an ROCE of 39%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

Check out our latest analysis for W.W. Grainger

In the above chart we have measured W.W. Grainger's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for W.W. Grainger .

So How Is W.W. Grainger's ROCE Trending?

W.W. Grainger deserves to be commended in regards to it's returns. The company has employed 55% more capital in the last five years, and the returns on that capital have remained stable at 39%. Now considering ROCE is an attractive 39%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If W.W. Grainger can keep this up, we'd be very optimistic about its future.

The Bottom Line

W.W. Grainger has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has done incredibly well with a 294% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for GWW that compares the share price and estimated value.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.