Yahoo Finance There's Been No Shortage Of Growth Recently For Shoe Carnival's (NASDAQ:SCVL) Returns On Capital
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Shoe Carnival (NASDAQ:SCVL) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Shoe Carnival:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = US$150m ÷ (US$966m - US$164m) (Based on the trailing twelve months to October 2022).
Therefore, Shoe Carnival has an ROCE of 19%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Specialty Retail industry average of 16%.
See our latest analysis for Shoe Carnival
Above you can see how the current ROCE for Shoe Carnival 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.
What Does the ROCE Trend For Shoe Carnival Tell Us?
Investors would be pleased with what's happening at Shoe Carnival. Over the last five years, returns on capital employed have risen substantially to 19%. 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 Shoe Carnival thanks to its ability to profitably reinvest capital.
The Bottom Line
To sum it up, Shoe Carnival has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 93% return over the last five years. In light of that, we think it's worth looking further into this stock because if Shoe Carnival can keep these trends up, it could have a bright future ahead.
One more thing, we've spotted 1 warning sign facing Shoe Carnival that you might find interesting.
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.
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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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