United States Lime & Minerals (NASDAQ:USLM) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at United States Lime & Minerals (NASDAQ:USLM) so let's look a bit deeper.

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. Analysts use this formula to calculate it for United States Lime & Minerals:

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

0.19 = US$79m ÷ (US$424m - US$16m) (Based on the trailing twelve months to September 2023).

Thus, United States Lime & Minerals has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 11% generated by the Basic Materials industry.

Check out 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 Does the ROCE Trend For United States Lime & Minerals Tell Us?

The trends we've noticed at United States Lime & Minerals are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. The amount of capital employed has increased too, by 74%. 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

To sum it up, United States Lime & Minerals has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 263% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While United States Lime & Minerals looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether USLM is currently trading for a fair price.

While United States Lime & Minerals may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.