In This Article:
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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Lindsay (NYSE:LNN) and its trend of ROCE, we really liked what we saw.
We check all companies for important risks. See what we found for Lindsay in our free report.
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. To calculate this metric for Lindsay, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$86m ÷ (US$814m - US$145m) (Based on the trailing twelve months to February 2025).
Thus, Lindsay has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 11% generated by the Machinery industry.
See our latest analysis for Lindsay
In the above chart we have measured Lindsay's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Lindsay for free.
So How Is Lindsay's ROCE Trending?
Lindsay is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 50%. So we're very much inspired by what we're seeing at Lindsay thanks to its ability to profitably reinvest capital.
The Bottom Line On Lindsay's ROCE
To sum it up, Lindsay has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 62% 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.
While Lindsay looks impressive, no company is worth an infinite price. The intrinsic value infographic for LNN helps visualize whether it is currently trading for a fair price.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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.