If you want to find stocks with long-term growth potential, what underlying trends should you look for? One common approach is to look for companies that: Return value Capital employed increasing with growth (ROCE) amount of capital employed. Simply put, this type of business is a compound interest machine, meaning you are continually reinvesting your earnings at an ever-higher rate of return.With that in mind, the ROCE olympic steel (NASDAQ:ZEUS) has been decent for now, so let's see what the return trend tells us.
About Return on Capital Employed (ROCE)
For those who aren't sure what ROCE is, it measures the amount of pre-tax profit a company can generate from the capital employed in its business. To calculate this metric for Olympic Steel, use the following formula:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.10 = USD 83 million ÷ (USD 985 million – USD 180 million) (Based on the previous 12 months to December 2023).
So, Olympic Steel has a ROCE of 10%. This in itself is a normal return on capital, comparable to the industry's average return of 10%.
Check out our latest analysis for Olympic Steel.
In the chart above, we measured Olympic Steel's previous ROCE against its previous performance, but the future is probably more important. If you're interested, take a look at our analyst forecasts. free Olympic Steel analyst report.
What can we learn from Olympic Steel's ROCE trends?
Return on capital is good, but hasn't changed much. The company has consistently had a return of 10% over the past five years, and during that time the capital employed within the business has increased by 27%. 10% is a fairly standard return, and there's some comfort in knowing that Olympic Steel consistently earns this amount. Over the long term, such returns may not be as attractive, but if they are consistent, they can pay off in terms of stock returns.
Our take on Olympic Steel's ROCE
The main thing to remember is that Olympic Steel has demonstrated the ability to continually reinvest at substantial rates of return. And there's no doubt that long-term investors are overjoyed with the results, as the stock has performed incredibly well over the past five years, returning 323%. So while investors may be considering the underlying positive trends, we still think the stock is worth further consideration.
Almost every company faces some kind of risk, so it's worth knowing what they are. Two warning signs for Olympic Steel (You can't ignore that one!) You should know.
For those who like investing, solid company, check this out free List of companies with strong balance sheets and high return 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 using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
