Why We Like The Returns At IDT (NYSE:IDT)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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 IDT's (NYSE:IDT) returns on capital, so let's have a look.

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

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 IDT, this is the formula:

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

0.27 = US$63m ÷ (US$517m - US$278m) (Based on the trailing twelve months to April 2024).

Thus, IDT has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 7.8% earned by companies in a similar industry.

See our latest analysis for IDT

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how IDT has performed in the past in other metrics, you can view this free graph of IDT's past earnings, revenue and cash flow.

So How Is IDT's ROCE Trending?

Investors would be pleased with what's happening at IDT. Over the last five years, returns on capital employed have risen substantially to 27%. The amount of capital employed has increased too, by 316%. So we're very much inspired by what we're seeing at IDT thanks to its ability to profitably reinvest capital.

One more thing to note, IDT has decreased current liabilities to 54% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Bottom Line

All in all, it's terrific to see that IDT is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 309% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if IDT can keep these trends up, it could have a bright future ahead.

IDT does have some risks though, and we've spotted 1 warning sign for IDT that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.