Yahoo Finance We Like D.R. Horton's (NYSE:DHI) Returns And Here's How They're Trending
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at D.R. Horton's (NYSE:DHI) look very promising so lets take a look.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for D.R. Horton, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.27 = US$6.8b ÷ (US$31b - US$5.5b) (Based on the trailing twelve months to March 2023).
Thus, D.R. Horton has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 17%.
Check out our latest analysis for D.R. Horton
In the above chart we have measured D.R. Horton's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for D.R. Horton.
The Trend Of ROCE
We like the trends that we're seeing from D.R. Horton. The data shows that returns on capital have increased substantially over the last five years to 27%. The amount of capital employed has increased too, by 119%. So we're very much inspired by what we're seeing at D.R. Horton thanks to its ability to profitably reinvest capital.
What We Can Learn From D.R. Horton's ROCE
All in all, it's terrific to see that D.R. Horton is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you'd like to know more about D.R. Horton, we've spotted 2 warning signs, and 1 of them is significant.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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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