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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So when we looked at H.B. Fuller (NYSE:FUL) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on H.B. Fuller is:

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

0.099 = US$425m ÷ (US$5.0b - US$705m) (Based on the trailing twelve months to August 2024).

Thus, H.B. Fuller has an ROCE of 9.9%. On its own, that's a low figure but it's around the 8.7% average generated by the Chemicals industry.

See our latest analysis for H.B. Fuller

Above you can see how the current ROCE for H.B. Fuller compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for H.B. Fuller .

What Does the ROCE Trend For H.B. Fuller Tell Us?

H.B. Fuller's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 35% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On H.B. Fuller's ROCE

To sum it up, H.B. Fuller is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 69% to shareholders over the last five years, it's fair to say investors are beginning to recognize 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 H.B. Fuller you'll probably want to know about.