Yahoo Finance The Returns At CSW Industrials (NASDAQ:CSWI) Aren't Growing
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at CSW Industrials' (NASDAQ:CSWI) ROCE trend, we were pretty happy with what we saw.
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 CSW Industrials is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$154m ÷ (US$993m - US$111m) (Based on the trailing twelve months to December 2023).
Thus, CSW Industrials has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 16% generated by the Building industry.
See our latest analysis for CSW Industrials
Above you can see how the current ROCE for CSW Industrials compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering CSW Industrials for free.
What Does the ROCE Trend For CSW Industrials Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 223% in that time. 18% is a pretty standard return, and it provides some comfort knowing that CSW Industrials has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
What We Can Learn From CSW Industrials' ROCE
To sum it up, CSW Industrials has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 324% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
If you're still interested in CSW Industrials it's worth checking out our FREE intrinsic value approximation for CSWI to see if it's trading at an attractive price in other respects.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
