If we want to find a potential multi-purpose product, there are often underlying trends that can provide clues. First, we want to recognize growth Back On the capital employed (ROCE) and then besides, it is constantly increasing a base of capital used. Simply put, these types of companies are compounding machines, meaning they constantly reinvest their profits at ever-higher rates of return. In light of this, the trends we are seeing W. W. Grainger (NYSE:GWW) looks very promising so let's take a look.
Understanding Return on Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the “return” (profit before tax) that a company generates on the capital used in its business. To calculate this measure for WW Grainger, this is the formula:
Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)
0.41 = $2.6 billion ÷ ($8.1 billion – $1.8 billion) (Based on the trailing twelve months to December 2023).
thus, WW Grainger has an ROCE of 41%. This is an impressive return in absolute terms, even better than the commercial distributor industry average of 13%.
View our latest analysis for WW Grainger
You can see above how WW Grainger's current return on equity (ROCE) compares to its past returns on equity, but there's only so much you can tell from the past. If you want to know what analysts are forecasting in the future, you should check out our free analyst report for WW Grainger.
How are returns trending?
Investors will be happy with what's happening at WW Grainger. Figures show that in the past five years, returns generated from capital employed have risen significantly to 41%. Essentially, the company is making more money per dollar of capital invested, and in addition, 44% more capital is now being employed as well. Increasing returns on an increasing amount of capital is common among multi-business owners, which is why we like it.
What we can learn from WW Grainger's ROCE
Overall, it's great to see that WW Grainger is reaping the rewards from previous investments and working to grow its capital base. With the stock performing exceptionally well over the past five years, these patterns are being taken into account by investors. In light of this, we think it's worth further research into this stock because if WW Grainger can maintain these trends, it could have a bright future ahead.
On a final note, we found… 1 warning sign for WW Grainger Which we think you should be aware of.
High returns are key to strong performance, so check out our website free A list of stocks that generate high returns on equity with strong balance sheets.
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This article written by Simply Wall St is general in nature. We provide comments based on historical data and analyst forecasts only using 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 into account your objectives or financial situation. We aim to offer you focused, long-term analysis driven by fundamental data. Note that our analysis may not take into account a company's most recent price-sensitive announcements or qualitative materials. Simply put, Wall St has no position in any of the stocks mentioned.
