Returns Are Gaining Momentum At GDI Integrated Facility Services (TSE:GDI)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in GDI Integrated Facility Services' (TSE:GDI) 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. Analysts use this formula to calculate it for GDI Integrated Facility Services:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.10 = CA$81m ÷ (CA$1.1b - CA$347m) (Based on the trailing twelve months to June 2022).

So, GDI Integrated Facility Services has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 7.6% it's much better.

See our latest analysis for GDI Integrated Facility Services

roce

Above you can see how the current ROCE for GDI Integrated Facility Services compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is GDI Integrated Facility Services' ROCE Trending?

Investors would be pleased with what's happening at GDI Integrated Facility Services. Over the last five years, returns on capital employed have risen substantially to 10%. 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 122%. So we're very much inspired by what we're seeing at GDI Integrated Facility Services thanks to its ability to profitably reinvest capital.

The Bottom Line On GDI Integrated Facility Services' ROCE

To sum it up, GDI Integrated Facility Services has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 172% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

GDI Integrated Facility Services does have some risks, we noticed 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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.

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