Investors Will Want Knight-Swift Transportation Holdings' (NYSE:KNX) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Knight-Swift Transportation Holdings' (NYSE:KNX) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Knight-Swift Transportation Holdings is:

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

0.085 = US$856m ÷ (US$11b - US$906m) (Based on the trailing twelve months to March 2023).

Therefore, Knight-Swift Transportation Holdings has an ROCE of 8.5%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 14%.

See our latest analysis for Knight-Swift Transportation Holdings

In the above chart we have measured Knight-Swift Transportation Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Knight-Swift Transportation Holdings.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.5%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 43%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Knight-Swift Transportation Holdings' ROCE

In summary, it's great to see that Knight-Swift Transportation Holdings can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 59% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. 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.

Knight-Swift Transportation Holdings does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.