NASDAQ:NVDA) returns on capital, so let’s have a look.” data-reactid=”28″>If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in NVIDIA’s (NASDAQ:NVDA) returns on capital, so let’s have a look.
Understanding Return On Capital Employed (ROCE)
For those that aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for NVIDIA, this is the formula:
Check out our latest analysis for NVIDIA ” data-reactid=”38″> Check out our latest analysis for NVIDIA
report on analyst forecasts for the company.” data-reactid=”51″>In the above chart we have measured NVIDIA’s prior ROCE against its prior performance, but the future is arguably more important. If you’re interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From NVIDIA’s ROCE Trend?
The trends we’ve noticed at NVIDIA are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 276%. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, a combination that’s common among multi-baggers.
Our Take On NVIDIA’s ROCE
All in all, it’s terrific to see that NVIDIA is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 2,090% 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.
3 warning signs for NVIDIA that we think you should be aware of.” data-reactid=”56″>On a final note, we’ve found 3 warning signs for NVIDIA that we think you should be aware of.
list of companies with solid balance sheets and high returns on equity.” data-reactid=”57″>For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>This article by Simply Wall St is general in nature. 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.
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