Why You Should Care About Forward Air's (NASDAQ:FWRD) Strong Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. That's why when we briefly looked at Forward Air's (NASDAQ:FWRD) 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. Analysts use this formula to calculate it for Forward Air:

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

0.20 = US$194m ÷ (US$1.2b - US$188m) (Based on the trailing twelve months to March 2022).

So, Forward Air has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

View our latest analysis for Forward Air

Above you can see how the current ROCE for Forward Air 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 Forward Air.

How Are Returns Trending?

We'd be pretty happy with returns on capital like Forward Air. The company has consistently earned 20% for the last five years, and the capital employed within the business has risen 69% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Forward Air can keep this up, we'd be very optimistic about its future.

Our Take On Forward Air's ROCE

In summary, we're delighted to see that Forward Air has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

While Forward Air looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether FWRD is currently trading for a fair price.

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.