Penske Automotive Group (NYSE:PAG) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can 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. 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 Penske Automotive Group's (NYSE:PAG) returns on capital, so let's have a look.

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. The formula for this calculation on Penske Automotive Group is:

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

0.13 = US$1.3b ÷ (US$17b - US$6.8b) (Based on the trailing twelve months to September 2024).

So, Penske Automotive Group has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.

Check out our latest analysis for Penske Automotive Group

Above you can see how the current ROCE for Penske Automotive Group 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 Penske Automotive Group .

What Can We Tell From Penske Automotive Group's ROCE Trend?

The trends we've noticed at Penske Automotive Group are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 13%. The amount of capital employed has increased too, by 24%. So we're very much inspired by what we're seeing at Penske Automotive Group thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Penske Automotive Group is reaping the rewards from prior investments and is growing its capital base. And a remarkable 250% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 2 warning signs for Penske Automotive Group (1 can't be ignored) you should be aware of.

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.