Yahoo Finance There's Been No Shortage Of Growth Recently For FutureFuel's (NYSE:FF) Returns On Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at FutureFuel (NYSE:FF) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on FutureFuel is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.099 = US$29m ÷ (US$341m - US$49m) (Based on the trailing twelve months to September 2022).
Therefore, FutureFuel has an ROCE of 9.9%. In absolute terms, that's a low return but it's around the Chemicals industry average of 12%.
See our latest analysis for FutureFuel
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of FutureFuel, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
You'd find it hard not to be impressed with the ROCE trend at FutureFuel. The figures show that over the last five years, returns on capital have grown by 87%. The company is now earning US$0.1 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 26% less capital than it was five years ago. FutureFuel may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
Our Take On FutureFuel's ROCE
In a nutshell, we're pleased to see that FutureFuel has been able to generate higher returns from less capital. Considering the stock has delivered 28% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
One final note, you should learn about the 4 warning signs we've spotted with FutureFuel (including 1 which is a bit unpleasant) .
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
