Returns On Capital Are Showing Encouraging Signs At UFP Technologies (NASDAQ:UFPT)

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at UFP Technologies (NASDAQ:UFPT) so let's look a bit deeper.

Understanding 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. To calculate this metric for UFP Technologies, this is the formula:

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

0.17 = US$64m ÷ (US$422m - US$52m) (Based on the trailing twelve months to June 2024).

Therefore, UFP Technologies has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.0% generated by the Medical Equipment industry.

See our latest analysis for UFP Technologies

Above you can see how the current ROCE for UFP Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for UFP Technologies .

So How Is UFP Technologies' ROCE Trending?

The trends we've noticed at UFP Technologies are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 113% more capital is being employed now too. So we're very much inspired by what we're seeing at UFP Technologies thanks to its ability to profitably reinvest capital.

Our Take On UFP Technologies' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what UFP Technologies has. And a remarkable 566% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

UFP Technologies does have some risks though, and we've spotted 1 warning sign for UFP Technologies that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.