Returns At United States Cellular (NYSE:USM) Are On The Way Up

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at United States Cellular (NYSE:USM) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for United States Cellular:

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

0.022 = US$193m ÷ (US$9.7b - US$872m) (Based on the trailing twelve months to December 2020).

So, United States Cellular has an ROCE of 2.2%. Even though it's in line with the industry average of 2.5%, it's still a low return by itself.

Check out our latest analysis for United States Cellular

Above you can see how the current ROCE for United States Cellular 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 report for United States Cellular.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 2.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 40% more capital is being employed now too. So we're very much inspired by what we're seeing at United States Cellular thanks to its ability to profitably reinvest capital.

What We Can Learn From United States Cellular's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what United States Cellular has. Given the stock has declined 15% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for United States Cellular (of which 2 don't sit too well with us!) that you should know about.

While United States Cellular 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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