Knight-Swift Transportation Holdings (NYSE:KNX) Will Be Hoping To Turn Its Returns On Capital Around

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Knight-Swift Transportation Holdings (NYSE:KNX), it didn't seem to tick all of these boxes.

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

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. To calculate this metric for Knight-Swift Transportation Holdings, this is the formula:

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

0.017 = US$183m ÷ (US$13b - US$1.6b) (Based on the trailing twelve months to March 2024).

Thus, Knight-Swift Transportation Holdings has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 7.1%.

See our latest analysis for Knight-Swift Transportation Holdings

Above you can see how the current ROCE for Knight-Swift Transportation Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Knight-Swift Transportation Holdings for free.

How Are Returns Trending?

When we looked at the ROCE trend at Knight-Swift Transportation Holdings, we didn't gain much confidence. To be more specific, ROCE has fallen from 7.6% over the last five years. However it looks like Knight-Swift Transportation Holdings might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Knight-Swift Transportation Holdings' ROCE

To conclude, we've found that Knight-Swift Transportation Holdings is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 67% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to continue researching Knight-Swift Transportation Holdings, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Knight-Swift Transportation Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.