Returns On Capital Are Showing Encouraging Signs At United States Lime & Minerals (NASDAQ:USLM)

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in United States Lime & Minerals' (NASDAQ:USLM) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on United States Lime & Minerals is:

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

0.19 = US$74m ÷ (US$402m - US$15m) (Based on the trailing twelve months to June 2023).

Therefore, United States Lime & Minerals has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 9.9% generated by the Basic Materials industry.

View our latest analysis for United States Lime & Minerals

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're interested in investigating United States Lime & Minerals' past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at United States Lime & Minerals. Over the last five years, returns on capital employed have risen substantially to 19%. The amount of capital employed has increased too, by 69%. So we're very much inspired by what we're seeing at United States Lime & Minerals thanks to its ability to profitably reinvest capital.

The Bottom Line On United States Lime & Minerals' 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 United States Lime & Minerals has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if United States Lime & Minerals can keep these trends up, it could have a bright future ahead.

United States Lime & Minerals does have some risks though, and we've spotted 1 warning sign for United States Lime & Minerals 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.