What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Having said that, from a first glance at Countryside Partnerships (LON:CSP) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Countryside Partnerships:

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

0.053 = UK£72m ÷ (UK£1.7b - UK£370m) (Based on the trailing twelve months to September 2021).

Thus, Countryside Partnerships has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 12%.

See our latest analysis for Countryside Partnerships

In the above chart we have measured Countryside Partnerships' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Countryside Partnerships Tell Us?

In terms of Countryside Partnerships' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 14% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Countryside Partnerships' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Countryside Partnerships is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 48% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

Countryside Partnerships does have some risks though, and we've spotted 1 warning sign for Countryside Partnerships that you might be interested in.