Shareholders Would Enjoy A Repeat Of Keller Group's (LON:KLR) Recent Growth In Returns
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Keller Group's (LON:KLR) returns on capital, so let's have a look.
What Is 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 Keller Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
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0.20 = UK£207m ÷ (UK£1.8b - UK£754m) (Based on the trailing twelve months to December 2024).
Thus, Keller Group has an ROCE of 20%. In absolute terms that's a very respectable return and compared to the Construction industry average of 19% it's pretty much on par.
View our latest analysis for Keller Group
In the above chart we have measured Keller Group's 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 analyst report for Keller Group .
So How Is Keller Group's ROCE Trending?
Keller Group has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 73% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
On a side note, Keller Group's current liabilities are still rather high at 42% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
In Conclusion...
In summary, we're delighted to see that Keller Group has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 251% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.