Yahoo Finance Simpson Manufacturing's (NYSE:SSD) Returns Have Hit A Wall
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. That's why when we briefly looked at Simpson Manufacturing's (NYSE:SSD) 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. Analysts use this formula to calculate it for Simpson Manufacturing:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = US$458m ÷ (US$2.7b - US$352m) (Based on the trailing twelve months to March 2024).
Thus, Simpson Manufacturing has an ROCE of 19%. That's a relatively normal return on capital, and it's around the 17% generated by the Building industry.
View our latest analysis for Simpson Manufacturing
Above you can see how the current ROCE for Simpson Manufacturing 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 analyst report for Simpson Manufacturing .
What Does the ROCE Trend For Simpson Manufacturing Tell Us?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 19% for the last five years, and the capital employed within the business has risen 169% in that time. 19% is a pretty standard return, and it provides some comfort knowing that Simpson Manufacturing 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.
The Bottom Line On Simpson Manufacturing's ROCE
The main thing to remember is that Simpson Manufacturing has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 163% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
On a separate note, we've found 1 warning sign for Simpson Manufacturing you'll probably want to know about.
While Simpson Manufacturing isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
