What are the first trends to look for to identify a title that could multiply over the long term? In a perfect world, we would like a business to invest more capital in their business, and ideally the returns from that capital increase as well. This shows us that it is a composing machine, capable of continually reinvesting its profits in the business and generating higher returns. With this in mind, the ROCE of Scotts Miracle Gro (NYSE: SMG) looks attractive right now, so let’s see what the yield trend can tell us.
What is Return on Employee Capital (ROCE)?
If you’ve never worked with ROCE before, it measures the âreturnâ (profit before tax) that a business generates on capital employed in its business. The formula for this calculation on Scotts Miracle-Gro is:
Return on capital employed = Profit before interest and taxes (EBIT) Ã· (Total assets – Current liabilities)
0.21 = $ 752 million Ã· ($ 4.8 billion – $ 1.1 billion) (Based on the last twelve months up to September 2021).
So, Scotts Miracle-Gro has a ROCE of 21%. In absolute terms, this is an excellent return and is even better than the chemical industry average of 11%.
NYSE: SMG Return on Capital Employed November 16, 2021
Above you can see how Scotts Miracle-Gro’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you’d like to see what analysts are forecasting for the future, you should check out our free report for Scotts Miracle-Gro.
So what’s the Scotts Miracle-Gro ROCE trend?
It’s hard not to be impressed with Scotts Miracle-Gro’s returns on capital. The company has employed 78% more capital over the past five years, and returns on that capital have remained stable at 21%. With such high returns, it’s great that the company can continually reinvest their money at such attractive rates of return. You will see this by looking at well run companies or favorable business models.
Scotts Miracle-Gro ROCE Basics
Scotts Miracle-Gro has demonstrated its competence in generating high returns on increasing amounts of capital employed, which we are delighted with. On top of that, the stock rewarded shareholders with a remarkable 122% return for those who have held it in the past five years. So while investors seem to recognize these promising trends, we still believe the stock deserves further research.
Like most businesses, Scotts Miracle-Gro comes with some risk, and we’ve found 1 warning sign that you need to be aware of.
If you want to look for other stocks that have delivered high returns, check out this free list of stocks with strong balance sheets that also generate high returns on equity.
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