Finding a business that has the potential to grow significantly isn’t easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; first growth come back on capital employed (ROCE) and on the other hand, growth amount capital employed. This shows us that it is a compounding machine, capable of continuously reinvesting its profits back into the business and generating higher returns. With this in mind, we have noticed some promising trends in Industries Chart (NYSE:GTLS) so let’s look a little deeper.
What is return on capital employed (ROCE)?
If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. Analysts use this formula to calculate it for Chart Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.039 = $93 million ÷ ($3.2 billion – $775 million) (Based on the last twelve months to June 2022).
So, Chart Industries posted a ROCE of 3.9%. Ultimately, it’s a poor performer and it underperforms the machinery industry average by 9.5%.
Check out our latest analysis for Chart Industries
In the chart above, we’ve measured Chart Industries’ past ROCE against its past performance, but the future is arguably more important. If you want to see what analysts are predicting for the future, you should check out our free report for Chart Industries.
So, what is the Chart Industries ROCE trend?
We are happy to see that the ROCE is heading in the right direction, even if it is still weak at the moment. The figures show that over the past five years, returns generated on capital employed have increased significantly to 3.9%. Basically, the business earns more per dollar of invested capital and on top of that, 139% more capital is also utilized now. Increasing returns on an increasing amount of capital are common among multi-baggers and that’s why we’re impressed.
Our view on Chart Industries ROCE
A company that increases its returns on capital and can constantly reinvest in itself is a highly sought after trait, and that is what Chart Industries possesses. Given that the stock has returned 469% to shareholders over the past five years, it seems investors recognize these changes. In light of that, we think it’s worth taking a closer look at this stock, because if Chart Industries can maintain these trends, it could have a bright future ahead of it.
Since virtually every business faces risks, it’s worth knowing about them, and we’ve spotted 2 warning signs for Chart Industries (1 of which is a little unpleasant!) that you should know about.
If you want to look for strong companies with excellent earnings, check out this free list of companies with strong balance sheets and impressive returns on equity.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.