United Parcel Service (NYSE:UPS) Is Investing Its Capital With Increasing Efficiency
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in United Parcel Service's (NYSE:UPS) returns on capital, so let's have a look.
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)
0.29 = US$15b ÷ (US$71b - US$18b) (Based on the trailing twelve months to December 2022).
So, United Parcel Service has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Logistics industry average of 12%.
See our latest analysis for United Parcel Service
In the above chart we have measured United Parcel Service's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for United Parcel Service.
The Trend Of ROCE
Investors would be pleased with what's happening at United Parcel Service. Over the last five years, returns on capital employed have risen substantially to 29%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 62%. So we're very much inspired by what we're seeing at United Parcel Service thanks to its ability to profitably reinvest capital.
Our Take On United Parcel Service's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what United Parcel Service has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 97% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you'd like to know more about United Parcel Service, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.
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.
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