Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at SiteOne Landscape Supply (NYSE:SITE), it didn't seem to tick all of these boxes.

Understanding 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 SiteOne Landscape Supply:

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

0.093 = US$233m ÷ (US$3.2b - US$683m) (Based on the trailing twelve months to June 2024).

Thus, SiteOne Landscape Supply has an ROCE of 9.3%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 13%.

See our latest analysis for SiteOne Landscape Supply

Above you can see how the current ROCE for SiteOne Landscape Supply 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 SiteOne Landscape Supply .

What Does the ROCE Trend For SiteOne Landscape Supply Tell Us?

In terms of SiteOne Landscape Supply's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.3% for the last five years, and the capital employed within the business has risen 113% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From SiteOne Landscape Supply's ROCE

In conclusion, SiteOne Landscape Supply has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 83% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you're still interested in SiteOne Landscape Supply it's worth checking out our FREE intrinsic value approximation for SITE to see if it's trading at an attractive price in other respects.

While SiteOne Landscape Supply isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.