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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, ITT (NYSE:ITT) looks quite promising in regards to its trends of return on capital.
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. The formula for this calculation on ITT is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$555m ÷ (US$4.4b - US$1.2b) (Based on the trailing twelve months to March 2024).
So, ITT has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 13% generated by the Machinery industry.
NYSE:ITT Return on Capital Employed May 24th 2024
In the above chart we have measured ITT's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering ITT for free.
What The Trend Of ROCE Can Tell Us
ITT has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 43% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. 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 ITT's ROCE
To bring it all together, ITT has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 147% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
While ITT looks impressive, no company is worth an infinite price. The intrinsic value infographic for ITT helps visualize whether it is currently trading for a fair price.
While ITT isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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.
成長の可能性があるビジネスを見つけることは容易ではないが、いくつかの主要な財務的指標を見ると可能である。一般的なアプローチの1つは、増加しているROCE(運用資本利益率)を持つ企業を見つけることである。 資本雇用における利回りが増加し、増加する資本雇用と共にある会社を見つけることは一般的な手法の1つです。これを見つけた場合、それは通常、素晴らしいビジネスモデルを持ち、多数の利益再投資機会がある企業であるということを意味します。Returns on capital employed (ROCE)とは何ですか? ROCEが何であるかわからない人のために、これは会社がビジネスで使用する資本から生み出す税引き前利益の量を測定するものです。MakeMyTripのこの計算の式は次のとおりです。Bumi Armada Berhadが前のROCEと前のパフォーマンスを比較した上図では、将来のROCEがより重要であるとされています。もし興味がある場合は、Bumi Armada Berhadの無料アナリストレポートをご覧いただけます。これは資本の再投資によってビジネスに事業利益をもたらす複利計算機であることを示します。したがって、ITT (nyse:ITT) の資本利益の傾向を考えると、かなり有望であると思われます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。