Grand Canyon Education (NASDAQ:LOPE) Is Investing Its Capital With Increasing Efficiency

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So when we looked at the ROCE trend of Grand Canyon Education (NASDAQ:LOPE) we really liked what we saw.

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. The formula for this calculation on Grand Canyon Education is:

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

0.38 = US$259m ÷ (US$787m - US$104m) (Based on the trailing twelve months to June 2022).

Therefore, Grand Canyon Education has an ROCE of 38%. That's a fantastic return and not only that, it outpaces the average of 6.2% earned by companies in a similar industry.

See our latest analysis for Grand Canyon Education

In the above chart we have measured Grand Canyon Education's 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 Grand Canyon Education here for free.

What The Trend Of ROCE Can Tell Us

Grand Canyon Education has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 41%. The company is now earning US$0.4 per dollar of capital employed. In regards to capital employed, Grand Canyon Education appears to been achieving more with less, since the business is using 29% less capital to run its operation. Grand Canyon Education may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line

In a nutshell, we're pleased to see that Grand Canyon Education has been able to generate higher returns from less capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 1.7% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Grand Canyon Education (of which 1 can't be ignored!) that you should know about.

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.