SunCoke Energy (NYSE:SXC) 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? 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. Speaking of which, we noticed some great changes in SunCoke Energy's (NYSE:SXC) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for SunCoke Energy, this is the formula:

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

0.088 = US$128m ÷ (US$1.7b - US$210m) (Based on the trailing twelve months to March 2024).

Therefore, SunCoke Energy has an ROCE of 8.8%. Even though it's in line with the industry average of 8.8%, it's still a low return by itself.

See our latest analysis for SunCoke Energy

Above you can see how the current ROCE for SunCoke Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for SunCoke Energy .

So How Is SunCoke Energy's ROCE Trending?

SunCoke Energy has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 38% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 23% less capital than it was five years ago. SunCoke Energy may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line

In the end, SunCoke Energy has proven it's capital allocation skills are good with those higher returns from less amount of capital. And with a respectable 50% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if SunCoke Energy can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for SunCoke Energy (of which 1 is concerning!) that 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.

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