Yahoo Finance A Look Into Meta Platforms' (NASDAQ:META) Impressive Returns On Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Ergo, when we looked at the ROCE trends at Meta Platforms (NASDAQ:META), we liked what we saw.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Meta Platforms:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.30 = US$62b ÷ (US$230b - US$27b) (Based on the trailing twelve months to June 2024).
So, Meta Platforms has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 6.6% earned by companies in a similar industry.
Check out our latest analysis for Meta Platforms
Above you can see how the current ROCE for Meta Platforms 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 Meta Platforms .
The Trend Of ROCE
It's hard not to be impressed by Meta Platforms' returns on capital. The company has employed 95% more capital in the last five years, and the returns on that capital have remained stable at 30%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Meta Platforms can keep this up, we'd be very optimistic about its future.
What We Can Learn From Meta Platforms' ROCE
In summary, we're delighted to see that Meta Platforms has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 169% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
Meta Platforms does have some risks though, and we've spotted 1 warning sign for Meta Platforms that you might be interested in.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.
