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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Old Dominion Freight Line's (NASDAQ:ODFL) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Old Dominion Freight Line is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.37 = US$1.5b ÷ (US$4.7b - US$579m) (Based on the trailing twelve months to March 2022).
So, Old Dominion Freight Line has an ROCE of 37%. In absolute terms that's a great return and it's even better than the Transportation industry average of 14%.
Check out our latest analysis for Old Dominion Freight Line
Above you can see how the current ROCE for Old Dominion Freight Line 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 report for Old Dominion Freight Line.
So How Is Old Dominion Freight Line's ROCE Trending?
Old Dominion Freight Line is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 37%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 72%. So we're very much inspired by what we're seeing at Old Dominion Freight Line thanks to its ability to profitably reinvest capital.
What We Can Learn From Old Dominion Freight Line's ROCE
In summary, it's great to see that Old Dominion Freight Line can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 336% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Old Dominion Freight Line can keep these trends up, it could have a bright future ahead.