Yahoo Finance Many Would Be Envious Of NVR's (NYSE:NVR) Excellent Returns On Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of NVR (NYSE:NVR) looks attractive right now, so lets see what the trend of returns can tell us.
Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on NVR is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.35 = US$2.0b ÷ (US$6.5b - US$813m) (Based on the trailing twelve months to March 2024).
So, NVR has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 15%.
Check out our latest analysis for NVR
Above you can see how the current ROCE for NVR compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for NVR .
What Can We Tell From NVR's ROCE Trend?
NVR deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 35% and the business has deployed 112% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If NVR can keep this up, we'd be very optimistic about its future.
The Bottom Line
In short, we'd argue NVR has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 128% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
One final note, you should learn about the 2 warning signs we've spotted with NVR (including 1 which is significant) .
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.
