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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Ituran Location and Control's (NASDAQ:ITRN) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Ituran Location and Control, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.30 = US$70m ÷ (US$321m - US$87m) (Based on the trailing twelve months to September 2024).
Therefore, Ituran Location and Control has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Communications industry average of 11%.
See our latest analysis for Ituran Location and Control
Above you can see how the current ROCE for Ituran Location and Control compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Ituran Location and Control .
How Are Returns Trending?
Ituran Location and Control is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 36% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
Our Take On Ituran Location and Control's ROCE
As discussed above, Ituran Location and Control appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 51% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.