Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in International Money Express’ (NASDAQ:IMXI) returns on capital, so let’s have a look.
Return On Capital Employed (ROCE): What is it?
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for International Money Express, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.32 = US$74m ÷ (US$350m – US$114m) (Based on the trailing twelve months to March 2022).
Therefore, International Money Express has an ROCE of 32%. That’s a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.
See our latest analysis for International Money Express
In the above chart we have measured International Money Express’ 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.
The Trend Of ROCE
Investors would be pleased with what’s happening at International Money Express. The data shows that returns on capital have increased substantially over the last five years to 32%. The amount of capital employed has increased too, by 145%. 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.
The Key Takeaway
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that’s what International Money Express has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 50% return over the last three years. In light of that, we think it’s worth looking further into this stock because if International Money Express can keep these trends up, it could have a bright future ahead.
One more thing to note, we’ve identified 1 warning sign with International Money Express and understanding it should be part of your investment process.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns 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 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.