What trends should we look for it we want to identify stocks that can 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 Universal Logistics Holdings' (NASDAQ:ULH) returns on capital, so let's have a look.
What is Return On Capital Employed (ROCE)?
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. The formula for this calculation on Universal Logistics Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$130m ÷ (US$1.2b - US$356m) (Based on the trailing twelve months to April 2022).
Thus, Universal Logistics Holdings has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Transportation industry average of 14%.
In the above chart we have measured Universal Logistics Holdings' 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 Universal Logistics Holdings here for free.
So How Is Universal Logistics Holdings' ROCE Trending?
The trends we've noticed at Universal Logistics Holdings are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 98%. So we're very much inspired by what we're seeing at Universal Logistics Holdings thanks to its ability to profitably reinvest capital.
All in all, it's terrific to see that Universal Logistics Holdings 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 96% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
On a separate note, we've found 2 warning signs for Universal Logistics Holdings you'll probably want to know about.
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.