Returns On Capital Are Showing Encouraging Signs At U-Haul Holding (NYSE:UHAL)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in U-Haul Holding's (NYSE:UHAL) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for U-Haul Holding:

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

0.088 = US$1.5b ÷ (US$18b - US$1.2b) (Based on the trailing twelve months to December 2022).

Thus, U-Haul Holding has an ROCE of 8.8%. Ultimately, that's a low return and it under-performs the Transportation industry average of 14%.

Check out our latest analysis for U-Haul Holding

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating U-Haul Holding's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For U-Haul Holding Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 8.8%. Basically the business is earning more per dollar of capital invested and in addition to that, 77% more capital is being employed now too. So we're very much inspired by what we're seeing at U-Haul Holding thanks to its ability to profitably reinvest capital.

What We Can Learn From U-Haul Holding's ROCE

To sum it up, U-Haul Holding has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 84% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, U-Haul Holding does come with some risks, and we've found 1 warning sign that you should be aware of.

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.