If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, SunCoke Energy (NYSE:SXC) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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 SunCoke Energy is:

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

0.086 = US$125m ÷ (US$1.7b - US$202m) (Based on the trailing twelve months to June 2024).

Thus, SunCoke Energy has an ROCE of 8.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.0%.

Above you can see how the current ROCE for SunCoke Energy 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 analyst report for SunCoke Energy .

So How Is SunCoke Energy's ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at SunCoke Energy. The figures show that over the last five years, returns on capital have grown by 43%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, SunCoke Energy appears to been achieving more with less, since the business is using 22% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

Our Take On SunCoke Energy's ROCE

In a nutshell, we're pleased to see that SunCoke Energy has been able to generate higher returns from less capital. And with a respectable 80% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with SunCoke Energy (at least 1 which is a bit concerning) , and understanding them would certainly be useful.

While SunCoke Energy 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.