Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Old Dominion Freight Line’s (NASDAQ:ODFL) returns on capital, so let’s have a look.
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Old Dominion Freight Line:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.33 = US$1.6b ÷ (US$5.4b – US$554m) (Based on the trailing twelve months to September 2024).
So, Old Dominion Freight Line has an ROCE of 33%. In absolute terms that’s a great return and it’s even better than the Transportation industry average of 7.5%.
See our latest analysis for Old Dominion Freight Line
Above you can see how the current ROCE for Old Dominion Freight Line 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 Old Dominion Freight Line .
Investors would be pleased with what’s happening at Old Dominion Freight Line. The data shows that returns on capital have increased substantially over the last five years to 33%. The amount of capital employed has increased too, by 39%. So we’re very much inspired by what we’re seeing at Old Dominion Freight Line thanks to its ability to profitably reinvest capital.
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 Old Dominion Freight Line has. Since the stock has returned a staggering 212% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.
On a separate note, we’ve found 1 warning sign for Old Dominion Freight Line you’ll probably want to know about.
