What Can The Trends At Radiant Logistics (NYSEMKT:RLGT) Tell Us About Their Returns?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Radiant Logistics (NYSEMKT:RLGT) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Radiant Logistics:

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

0.11 = US$20m ÷ (US$289m - US$104m) (Based on the trailing twelve months to September 2020).

Thus, Radiant Logistics has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Logistics industry average of 10%.

See our latest analysis for Radiant Logistics

Above you can see how the current ROCE for Radiant Logistics compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Radiant Logistics' ROCE Trending?

Radiant Logistics' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 110% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Radiant Logistics' ROCE

In summary, we're delighted to see that Radiant Logistics has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 98% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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.

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

While Radiant Logistics 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. 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.
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