Slowing Rates Of Return At Service Corporation International (NYSE:SCI) Leave Little Room For Excitement

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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Service Corporation International (NYSE:SCI), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Service Corporation International, this is the formula:

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

0.06 = US$933m ÷ (US$16b - US$749m) (Based on the trailing twelve months to December 2023).

Thus, Service Corporation International has an ROCE of 6.0%. Ultimately, that's a low return and it under-performs the Consumer Services industry average of 7.6%.

Check out our latest analysis for Service Corporation International

In the above chart we have measured Service Corporation International's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Service Corporation International .

What Can We Tell From Service Corporation International's ROCE Trend?

In terms of Service Corporation International's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 6.0% for the last five years, and the capital employed within the business has risen 29% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Service Corporation International's ROCE

In conclusion, Service Corporation International has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 88% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Service Corporation International does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

While Service Corporation International isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.