Under The Bonnet, Grand Canyon Education's (NASDAQ:LOPE) Returns Look Impressive

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Grand Canyon Education's (NASDAQ:LOPE) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 Grand Canyon Education:

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

0.31 = US$273m ÷ (US$993m - US$107m) (Based on the trailing twelve months to September 2024).

Therefore, Grand Canyon Education has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 9.2% earned by companies in a similar industry.

See our latest analysis for Grand Canyon Education

Above you can see how the current ROCE for Grand Canyon Education 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 analyst report for Grand Canyon Education .

What Does the ROCE Trend For Grand Canyon Education 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 88%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Grand Canyon Education appears to been achieving more with less, since the business is using 46% 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.

What We Can Learn From Grand Canyon Education's ROCE

In a nutshell, we're pleased to see that Grand Canyon Education has been able to generate higher returns from less capital. And with a respectable 66% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

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.