Valmont Industries' (NYSE:VMI) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. 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 Valmont Industries' (NYSE:VMI) returns on capital, so let's have a look.

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

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

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

0.16 = US$433m ÷ (US$3.6b - US$804m) (Based on the trailing twelve months to December 2022).

So, Valmont Industries has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 9.3% it's much better.

Check out our latest analysis for Valmont Industries

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

The Trend Of ROCE

Investors would be pleased with what's happening at Valmont Industries. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 25%. So we're very much inspired by what we're seeing at Valmont Industries thanks to its ability to profitably reinvest capital.

The Bottom Line

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 Valmont Industries has. Since the stock has returned a staggering 127% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Valmont Industries does come with some risks, and we've found 1 warning sign that you should be aware of.

While Valmont Industries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.