What are the early trends to look for to identify a stock that could multiply in value over the long term? First, we would like to identify a growth come back on capital employed (ROCE) and at the same time, a base capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. So when we ran our eyes Knight-Swift Transportation Holdings’ (NYSE: KNX) ROCE trend, we liked what we saw.
Return on capital employed (ROCE): what is it?
For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. To calculate this metric for Knight-Swift Transportation Holdings, here is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.10 = $1.0 billion ÷ ($11 billion – $1.1 billion) (Based on the last twelve months to June 2022).
Thereby, Knight-Swift Transportation Holdings has a 10% ROI. On its own, that’s pretty standard performance, but compared to the transportation industry average of 15%, it’s not nearly as good.
See our latest analysis for Knight-Swift Transportation Holdings
In the chart above, we’ve measured Knight-Swift Transportation Holdings’ past ROE against its past performance, but the future is arguably more important. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
So what is Knight-Swift Transportation Holdings ROCE trending?
The ROCE trend isn’t showing much, but overall returns are decent. The company has consistently grown 10% over the past five years and the capital employed within the company has increased by 789% over this period. 10% is a pretty standard return, and it’s reassuring knowing that Knight-Swift Transportation Holdings has always earned that amount. Over long periods of time, returns like these may not be too exciting, but with consistency they can pay off in terms of stock price performance.
Knight-Swift Transportation Holdings ROCE Basics
Ultimately, Knight-Swift Transportation Holdings has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit, returning 53% to shareholders over the past five years. So while investors seem to recognize these promising trends, we still think the stock warrants further research.
Finally we found 1 warning sign for Knight-Swift Transportation Holdings which we think you should be aware of.
For those who like to invest in solid companies, look at this free list of companies with strong balance sheets and high returns on equity.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.