Shoe Carnival (NASDAQ:SCVL) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Shoe Carnival (NASDAQ:SCVL) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Shoe Carnival:

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

0.18 = US$146m ÷ (US$990m - US$157m) (Based on the trailing twelve months to January 2023).

Therefore, Shoe Carnival has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 14% generated by the Specialty Retail industry.

View our latest analysis for Shoe Carnival

In the above chart we have measured Shoe Carnival's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Shoe Carnival here for free.

SWOT Analysis for Shoe Carnival

The Trend Of ROCE

We like the trends that we're seeing from Shoe Carnival. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. 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 132%. So we're very much inspired by what we're seeing at Shoe Carnival thanks to its ability to profitably reinvest capital.

Our Take On Shoe Carnival's ROCE

All in all, it's terrific to see that Shoe Carnival is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 98% return over the last five years. In light of that, we think it's worth looking further into this stock because if Shoe Carnival can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 2 warning signs with Shoe Carnival (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.

While Shoe Carnival may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.