Yahoo Finance Returns On Capital Are Showing Encouraging Signs At Quest Resource Holding (NASDAQ:QRHC)
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. So when we looked at Quest Resource Holding (NASDAQ:QRHC) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Quest Resource Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.041 = US$5.5m ÷ (US$179m - US$43m) (Based on the trailing twelve months to March 2024).
Therefore, Quest Resource Holding has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 9.9%.
See our latest analysis for Quest Resource Holding
Above you can see how the current ROCE for Quest Resource Holding 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 Quest Resource Holding .
What The Trend Of ROCE Can Tell Us
Quest Resource Holding has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 4.1% on its capital. Not only that, but the company is utilizing 102% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
What We Can Learn From Quest Resource Holding's ROCE
Overall, Quest Resource Holding gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 252% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
Like most companies, Quest Resource Holding does come with some risks, and we've found 2 warning signs that you should be aware of.
While Quest Resource Holding 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.
