Vulcan Materials (NYSE:VMC) Is Doing The Right Things To Multiply Its Share Price

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Vulcan Materials (NYSE:VMC) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Vulcan Materials:

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

0.10 = US$1.4b ÷ (US$14b - US$797m) (Based on the trailing twelve months to June 2024).

Thus, Vulcan Materials has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Basic Materials industry average of 13%.

Check out our latest analysis for Vulcan Materials

Above you can see how the current ROCE for Vulcan Materials 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 analyst report for Vulcan Materials .

What Can We Tell From Vulcan Materials' ROCE Trend?

Investors would be pleased with what's happening at Vulcan Materials. The data shows that returns on capital have increased substantially over the last five years to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 37% more capital is being employed now too. So we're very much inspired by what we're seeing at Vulcan Materials thanks to its ability to profitably reinvest capital.

The Bottom Line On Vulcan Materials' ROCE

In summary, it's great to see that Vulcan Materials can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 77% 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. Therefore, we think it would be worth your time to check if these trends are going to continue.

Vulcan Materials does have some risks though, and we've spotted 2 warning signs for Vulcan Materials that you might be interested in.

While Vulcan Materials isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.