Yahoo Finance Knife River (NYSE:KNF) Is Experiencing Growth In Returns On Capital
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Knife River's (NYSE:KNF) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Knife River is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = US$303m ÷ (US$2.5b - US$297m) (Based on the trailing twelve months to March 2024).
Thus, Knife River has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Basic Materials industry average of 11%.
View our latest analysis for Knife River
Above you can see how the current ROCE for Knife River compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Knife River .
The Trend Of ROCE
Investors would be pleased with what's happening at Knife River. Over the last two years, returns on capital employed have risen substantially to 14%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 22%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Key Takeaway
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Knife River has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 58% return over the last year. In light of that, we think it's worth looking further into this stock because if Knife River can keep these trends up, it could have a bright future ahead.
One more thing, we've spotted 1 warning sign facing Knife River that you might find interesting.
While Knife River may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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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