Why We Like The Returns At United-Guardian (NASDAQ:UG)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at United-Guardian's (NASDAQ:UG) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for United-Guardian:

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

0.47 = US$4.7m ÷ (US$12m - US$1.7m) (Based on the trailing twelve months to September 2022).

So, United-Guardian has an ROCE of 47%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 14%.

Check out the opportunities and risks within the US Personal Products industry.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of United-Guardian, check out these free graphs here.

What Can We Tell From United-Guardian's ROCE Trend?

You'd find it hard not to be impressed with the ROCE trend at United-Guardian. The data shows that returns on capital have increased by 48% over the trailing five years. 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, United-Guardian appears to been achieving more with less, since the business is using 33% less capital to run its operation. United-Guardian 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 United-Guardian's ROCE

In summary, it's great to see that United-Guardian has been able to turn things around and earn higher returns on lower amounts of capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to know some of the risks facing United-Guardian we've found 5 warning signs (2 are significant!) that you should be aware of before investing here.

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.