If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at REV Group (NYSE:REVG) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for REV Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = US$115m ÷ (US$1.3b - US$519m) (Based on the trailing twelve months to April 2024).
So, REV Group has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Machinery industry average of 13%.
NYSE:REVG Return on Capital Employed June 11th 2024
In the above chart we have measured REV Group'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 REV Group .
What Can We Tell From REV Group's ROCE Trend?
REV Group has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 148% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 39% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.
The Bottom Line On REV Group's ROCE
To sum it up, REV Group is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 160% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
One final note, you should learn about the 3 warning signs we've spotted with REV Group (including 2 which are a bit unpleasant) .
While REV Group 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.
長期的に増幅する可能性のある株式を探したい場合、どのような基本的なトレンドを見るべきでしょうか?通常、資本運用利回り(ROCE)の成長トレンドに注目する必要があり、同時に資本運用資産の拡大基盤を確認する必要があります。言い換えると、この種のビジネスは複利機械であり、収益を常により高い利回りで再投資し続けていることを意味します。そのため、中国重汽(HKG:3808)のROCEのトレンドを見ると、まったく魅力を感じませんでした。資本利回り (ROCE)とは何ですか?わからない方には、ROCEは企業が事業に使用する資本から、税引き前利益をどれだけ生成できるかを測定します。アナリストは以下の式を使用して、Bumi Armada BerhadのROCEを計算します。「ROCE = 利息や税金を除いた利益 (EBIT) ÷ (総資産 - 流動負債)」。増え続ける売上高(revenue)はROCEのトレンドの中にあります。このように見ると、優れたビジネスモデルと豊富な収益性の高い再投資機会を持つ企業であることを示しています。しかし、Clearway Energy(NYSE:CWEN.A)を調査した結果、現在のトレンドが多倍化の形に合致していないと判断されました。NYSE:HD Return on Capital Employed 2024年4月10日雇用された資本の利用に対する投資収益率を示す。結局、業種に利益重新投資して収益を増加させているビジネスであることを示しています。したがって、REV Group(NYSE:REVG)のROCEの傾向を調べたとき、私たちは実際に見たものが好きでした。
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。