If we are to find multi-bagger potential, there are often underlying trends that can provide clues. A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in connection with growth amount capital employed. Put simply, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. With that in mind, we’ve noticed some promising trends at Schneider National (NYSE: SNDR) So let’s look a little deeper.
What is Return on Employee Capital (ROCE)?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. To calculate this metric for Schneider National, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) Ã· (Total assets – Current liabilities)
0.15 = US $ 467 million Ã· (US $ 3.9 billion – US $ 716 million) (Based on the last twelve months up to September 2021).
Thereby, Schneider National has a ROCE of 15%. In absolute terms, this is a satisfactory performance, but compared to the 12% average for the transport industry, it is much better.
NYSE: SNDR Return on Capital Employee November 30, 2021
Above you can see how Schneider National’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you are interested, you can view analyst forecasts in our free business analyst forecast report.
What does Schneider National’s ROCE trend tell us?
We love the trends we see at Schneider National. Figures show that over the past five years, returns on capital employed have increased significantly to 15%. The company actually makes more money per dollar of capital used, and it should be noted that the amount of capital has also increased by 29%. We are therefore very inspired by what we see at Schneider National thanks to its ability to reinvest capital profitably.
The key to take away
A business that increases its returns on capital and can constantly reinvest in itself is a highly desirable trait, and that is what Schneider National has. And with a respectable 28% attributed to those who held the stock over the past three years, it could be argued that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your while to check if these trends will continue.
On a final note, we found 1 warning sign for Schneider National that we think you should be aware of.
Although Schneider National doesn’t get the highest return, check out this free list of companies that generate high returns on equity with strong balance sheets.
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