U.S. Silica Holdings (NYSE:SLCA) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at U.S. Silica Holdings (NYSE:SLCA) so let's look a bit deeper.

What Is 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 U.S. Silica Holdings:

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

0.14 = US$277m ÷ (US$2.1b - US$186m) (Based on the trailing twelve months to December 2023).

Thus, U.S. Silica Holdings has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 12% generated by the Energy Services industry.

See our latest analysis for U.S. Silica Holdings

Above you can see how the current ROCE for U.S. Silica Holdings 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 U.S. Silica Holdings .

What Can We Tell From U.S. Silica Holdings' ROCE Trend?

You'd find it hard not to be impressed with the ROCE trend at U.S. Silica Holdings. We found that the returns on capital employed over the last five years have risen by 156%. The company is now earning US$0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 28% less than it was five years ago, which can be indicative of a business that's improving its efficiency. U.S. Silica Holdings 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 U.S. Silica Holdings' ROCE

In summary, it's great to see that U.S. Silica Holdings has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 19% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

U.S. Silica Holdings does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those can't be ignored...

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.