Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Schneider National's (NYSE:SNDR) returns on capital, so let's have a look.
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. Analysts use this formula to calculate it for Schneider National:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$507m ÷ (US$4.5b - US$594m) (Based on the trailing twelve months to June 2023).
Thus, Schneider National has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Transportation industry average of 12%.
View our latest analysis for Schneider National
In the above chart we have measured Schneider National'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 Schneider National here for free.
So How Is Schneider National's ROCE Trending?
The trends we've noticed at Schneider National are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 13%. The amount of capital employed has increased too, by 30%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Key Takeaway
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Schneider National has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 54% return over the last five years. In light of that, we think it's worth looking further into this stock because if Schneider National can keep these trends up, it could have a bright future ahead.
While Schneider National looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SNDR is currently trading for a fair price.
While Schneider National isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.