The Return Trends At Acushnet Holdings (NYSE:GOLF) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Acushnet Holdings (NYSE:GOLF) so let's look a bit deeper.

What Is 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 Acushnet Holdings:

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

0.14 = US$220m ÷ (US$2.1b - US$548m) (Based on the trailing twelve months to June 2022).

So, Acushnet Holdings has an ROCE of 14%. In isolation, that's a pretty standard return but against the Leisure industry average of 21%, it's not as good.

View our latest analysis for Acushnet Holdings

In the above chart we have measured Acushnet Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Acushnet Holdings here for free.

What Can We Tell From Acushnet Holdings' ROCE Trend?

Acushnet Holdings is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 44% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Acushnet Holdings' ROCE

In summary, we're delighted to see that Acushnet Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 215% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Acushnet Holdings can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Acushnet Holdings that we think you should be aware of.

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.