What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Globe International (ASX:GLB) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Globe International:

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

0.28 = AU$28m ÷ (AU$151m - AU$54m) (Based on the trailing twelve months to June 2022).

Therefore, Globe International has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.

View our latest analysis for Globe International

Historical performance is a great place to start when researching a stock so above you can see the gauge for Globe International's ROCE against it's prior returns. If you're interested in investigating Globe International's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Globe International's ROCE Trending?

Globe International is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 28%. The amount of capital employed has increased too, by 166%. So we're very much inspired by what we're seeing at Globe International thanks to its ability to profitably reinvest capital.

The Bottom Line On Globe International's ROCE

In summary, it's great to see that Globe International can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 249% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing Globe International we've found 4 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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