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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at United Rentals (NYSE:URI) so let's look a bit deeper.

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. The formula for this calculation on United Rentals is:

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

0.17 = US$4.1b ÷ (US$28b - US$4.0b) (Based on the trailing twelve months to September 2024).

So, United Rentals has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Trade Distributors industry average of 12% it's much better.

In the above chart we have measured United Rentals' 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 Rentals .

What Does the ROCE Trend For United Rentals Tell Us?

United Rentals is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 17%. The amount of capital employed has increased too, by 45%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On United Rentals' ROCE

All in all, it's terrific to see that United Rentals is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 339% to shareholders over the last five years, it looks like investors are recognizing 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.

One more thing, we've spotted 1 warning sign facing United Rentals that you might find interesting.

While United Rentals 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.