If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Vulcan Materials (NYSE:VMC) looks quite promising in regards to its trends of return on capital.

What Is 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. Analysts use this formula to calculate it for Vulcan Materials:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.10 = US$1.4b ÷ (US$14b - US$797m) (Based on the trailing twelve months to June 2024).

Therefore, Vulcan Materials has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 13% generated by the Basic Materials industry.

View our latest analysis for Vulcan Materials

Above you can see how the current ROCE for Vulcan Materials compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Vulcan Materials for free.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Vulcan Materials. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 37%. So we're very much inspired by what we're seeing at Vulcan Materials thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Vulcan Materials is reaping the rewards from prior investments and is growing its capital base. And with a respectable 84% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Vulcan Materials does have some risks though, and we've spotted 2 warning signs for Vulcan Materials that you might be interested in.

While Vulcan Materials 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.