The Returns At United Parcel Service (NYSE:UPS) Aren't Growing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. 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 United Parcel Service's (NYSE:UPS) ROCE trend, we were pretty happy with what we saw.

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. Analysts use this formula to calculate it for United Parcel Service:

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

0.15 = US$8.1b ÷ (US$69b - US$15b) (Based on the trailing twelve months to June 2024).

Thus, United Parcel Service has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Logistics industry average of 12% it's much better.

View our latest analysis for United Parcel Service

In the above chart we have measured United Parcel Service's 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 analyst report for United Parcel Service .

What Does the ROCE Trend For United Parcel Service Tell Us?

While the returns on capital are good, they haven't moved much. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 39% in that time. 15% is a pretty standard return, and it provides some comfort knowing that United Parcel Service has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

The main thing to remember is that United Parcel Service has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 33% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

One final note, you should learn about the 3 warning signs we've spotted with United Parcel Service (including 1 which can't be ignored) .

While United Parcel Service isn't earning the highest return, check out this free list of companies that are 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.