Reliance Worldwide (ASX:RWC) is doing the right things to multiply its share price

When we want to find a potential multi-bagger, there are often underlying trends that can provide clues. First, we want a proven yield on the capital employed (ROCE) which is increasing, and secondly a growing base of the invested capital. Ultimately, this shows that it is a company that is reinvesting profits at increasing rates of return. With that in mind, we have noticed some promising trends in Trust Worldwide (ASX:RWC) Let’s dig a little deeper.

What is Return on Invested Capital (ROCE)?

For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (the return), relative to the capital invested in the business. Analysts use this formula to calculate it for Reliance Worldwide:

Return on invested capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.11 = US$197 million ÷ (US$2.0 billion – US$196 million) (Based on the past twelve months ending December 2023).

Therefore, Reliance Worldwide has a ROCE of 11%. In itself, that is a normal return on capital and is in line with the industry average return of 11%.

View our latest analysis for Reliance Worldwide

Above you can see how the current ROCE for Reliance Worldwide compares to its past returns on capital, but there’s only so much you can tell from the past. If you’re interested, you can check out analyst forecasts in our free analyst report for Reliance Worldwide.

The trend of ROCE

Reliance Worldwide is showing some positive trends. The numbers show that returns on invested capital have increased significantly over the past five years to 11%. The company is effectively making more money per dollar of invested capital and it is worth noting that the amount of capital has also increased, by 39%. This could indicate that there is ample opportunity to invest capital internally and at increasingly higher rates, a combination that is common in multi-baggers.

It comes down to

Overall, it’s great to see Reliance Worldwide reaping the rewards of its previous investments and growing its capital base. Given that the stock has delivered a solid 51% return to shareholders over the past five years, it’s fair to say that investors are starting to recognize these changes. With that in mind, we think the stock is worth investigating further, as if Reliance Worldwide can maintain these trends, it could have a bright future.

Another thing we noticed 1 warning sign versus Reliance Worldwide that you may find interesting.

While Reliance Worldwide may not be the highest yielding stock, check this out free list of companies that achieve high returns on equity and have a solid balance sheet.

Do you have feedback on this article? Are you concerned about the content? Contact Us directly with us. You can also email editorial-team (at) simplywallst.com.

This article from Simply Wall St is general in nature. We comment solely on historical data and analyst forecasts, using an objective methodology. Our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or financial situation. We aim to provide you with a long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in the shares mentioned.

Do you have feedback on this article? Are you concerned about the content? Please contact us directly. You can also send an email to [email protected]