Cavco Industries (NASDAQ:CVCO) Is Achieving High Returns On Its Capital

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Cavco Industries (NASDAQ:CVCO) we really liked what we saw.

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. To calculate this metric for Cavco Industries, this is the formula:

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

0.32 = US$311m ÷ (US$1.3b - US$278m) (Based on the trailing twelve months to December 2022).

Thus, Cavco Industries has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 17%.

View our latest analysis for Cavco Industries

Above you can see how the current ROCE for Cavco Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

We like the trends that we're seeing from Cavco Industries. Over the last five years, returns on capital employed have risen substantially to 32%. The amount of capital employed has increased too, by 99%. So we're very much inspired by what we're seeing at Cavco Industries thanks to its ability to profitably reinvest capital.

What We Can Learn From Cavco Industries' ROCE

All in all, it's terrific to see that Cavco Industries is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 67% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Cavco Industries, you might be interested to know about the 1 warning sign that our analysis has discovered.

Cavco Industries 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.