What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in UFP Industries' (NASDAQ:UFPI) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 UFP Industries:

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

0.17 = US$619m ÷ (US$4.1b - US$525m) (Based on the trailing twelve months to March 2024).

So, UFP Industries has an ROCE of 17%. That's a pretty standard return and it's in line with the industry average of 17%.

Above you can see how the current ROCE for UFP Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for UFP Industries .

What The Trend Of ROCE Can Tell Us

The trends we've noticed at UFP Industries are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 137%. So we're very much inspired by what we're seeing at UFP Industries thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, UFP Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 212% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if UFP Industries can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for UFP Industries that we think you should be aware of.

While UFP Industries 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.

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