United States Lime & Minerals (NASDAQ:USLM) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at United States Lime & Minerals (NASDAQ:USLM) and its trend of ROCE, we really liked what we saw.

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 States Lime & Minerals:

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

0.17 = US$64m ÷ (US$388m - US$19m) (Based on the trailing twelve months to March 2023).

So, United States Lime & Minerals has an ROCE of 17%. 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

Historical performance is a great place to start when researching a stock so above you can see the gauge for United States Lime & Minerals' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of United States Lime & Minerals, check out these free graphs here.

SWOT Analysis for United States Lime & Minerals

What The Trend Of ROCE Can Tell Us

United States Lime & Minerals is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 65%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

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 147% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

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.

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.