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Finding a business with significant growth potential isn’t easy, but it’s possible if you focus on a few key financial metrics. In particular, I would like to look at two things.First, grow return The first is capital employed (ROCE) and the second is the company’s capital growth. amount of capital employed. Simply put, this type of business is a compound interest machine, meaning you are continually reinvesting your earnings at an ever-higher rate of return. So when we looked through, autozone’s (NYSE:AZO) ROCE Trends, we really liked what we saw.
About Return on Capital Employed (ROCE)
For those who have never used ROCE before, it measures the “return” (pre-tax profit) that a company generates from the capital employed in its business. The analyst uses the following formula to calculate her AutoZone.
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.46 = USD 3.7 billion ÷ (USD 17 billion – USD 8.8 billion) (Based on the previous 12 months to February 2024).
So, AutoZone’s ROCE is 46%. That’s an impressive return, and not only that, but it’s higher than the average 14% earned by companies in similar industries.
See our latest analysis for AutoZone.
Above you can see how AutoZone’s current ROCE compares to its previous return on equity, but the past can only tell you so much. Want to see what analysts are predicting for the future? Check out AutoZone’s free analyst report.
ROCE trends
When it comes to AutoZone’s ROCE history, it’s quite impressive. The company has deployed 80% more capital over the past five years, and its return on capital has remained steady at 46%. A return like this would be the envy of most companies, and it’s even better considering it has been repeatedly reinvested at such rates. If AutoZone can keep this up, we’ll be very optimistic about its future.
Another thing to note is that AutoZone’s current liabilities to total assets ratio is high at 52%. This may create a certain degree of risk because we essentially operate with a substantial reliance on suppliers and other short-term creditors. Ideally, we would like this to decrease, as a decrease would mean fewer risk-bearing obligations.
Our take on AutoZone’s ROCE
In summary, we’re pleased to see that AutoZone is doubling its earnings by reinvesting at consistently high rates of return. Because this is a common feature of multibaggers. And long-term investors will be delighted with his 220% return over the past five years. As such, we believe the stock’s strong fundamentals merit further research, even if the stock is now more “expensive” than it was previously.
In the end, we found that 3 warning signs for AutoZone (note that 1 is a bit unpleasant).
High returns are a key element of strong performance. free A list of stocks with solid balance sheets and high return on equity.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
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