A Look Into Meta Platforms' (NASDAQ:META) Impressive Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. That's why when we briefly looked at Meta Platforms' (NASDAQ:META) ROCE trend, we were very happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Meta Platforms, this is the formula:

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

0.30 = US$62b ÷ (US$230b - US$27b) (Based on the trailing twelve months to June 2024).

Therefore, Meta Platforms has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Interactive Media and Services industry average of 6.3%.

View our latest analysis for Meta Platforms

Above you can see how the current ROCE for Meta Platforms 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 Meta Platforms .

How Are Returns Trending?

In terms of Meta Platforms' history of ROCE, it's quite impressive. The company has employed 95% more capital in the last five years, and the returns on that capital have remained stable at 30%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Meta Platforms can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has done incredibly well with a 218% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 1 warning sign for Meta Platforms that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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.