Yahoo Finance Returns On Capital At United Parcel Service (NYSE:UPS) Have Hit The Brakes
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. 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 United Parcel Service's (NYSE:UPS) ROCE trend, we were pretty happy with what we saw.
Return On Capital Employed (ROCE): What Is It?
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 United Parcel Service is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$8.9b ÷ (US$68b - US$15b) (Based on the trailing twelve months to March 2024).
So, United Parcel Service has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 10% generated by the Logistics industry.
Check out our latest analysis for United Parcel Service
Above you can see how the current ROCE for United Parcel Service 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 United Parcel Service .
The Trend Of ROCE
While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 17% and the business has deployed 36% more capital into its operations. 17% is a pretty standard return, and it provides some comfort knowing that United Parcel Service has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
Our Take On United Parcel Service's ROCE
In the end, United Parcel Service has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 71% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
One more thing: We've identified 3 warning signs with United Parcel Service (at least 1 which is a bit concerning) , and understanding these would certainly be useful.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
