What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Speaking of which, we noticed some great changes in Kirby's (NYSE:KEX) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Kirby:

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

0.08 = US$413m ÷ (US$5.9b - US$685m) (Based on the trailing twelve months to June 2024).

Thus, Kirby has an ROCE of 8.0%. On its own, that's a low figure but it's around the 9.0% average generated by the Shipping industry.

See our latest analysis for Kirby

Above you can see how the current ROCE for Kirby 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 Kirby .

The Trend Of ROCE

Kirby has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 60% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Kirby's ROCE

To bring it all together, Kirby has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 55% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Kirby does come with some risks, and we've found 1 warning sign that you should be aware of.