Returns On Capital At Kronos Worldwide (NYSE:KRO) Have Stalled

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Kronos Worldwide (NYSE:KRO) looks decent, right now, so lets see what the trend of returns can tell us.

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. To calculate this metric for Kronos Worldwide, this is the formula:

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

0.13 = US$220m ÷ (US$2.0b - US$281m) (Based on the trailing twelve months to March 2022).

Therefore, Kronos Worldwide has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Chemicals industry average of 12%.

View our latest analysis for Kronos Worldwide

Above you can see how the current ROCE for Kronos Worldwide 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 report on analyst forecasts for the company.

So How Is Kronos Worldwide's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 65% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

To sum it up, Kronos Worldwide has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock has only delivered a 35% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

Kronos Worldwide does have some risks, we noticed 3 warning signs (and 1 which is concerning) we think you should know about.

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.

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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.