What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Linamar (TSE:LNR) looks quite promising in regards to its trends of return on capital.
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 Linamar, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.12 = CA$939m ÷ (CA$11b – CA$2.8b) (Based on the trailing twelve months to March 2025).
Thus, Linamar has an ROCE of 12%. That’s a relatively normal return on capital, and it’s around the 11% generated by the Auto Components industry.
Check out our latest analysis for Linamar
Above you can see how the current ROCE for Linamar 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 Linamar .
The trends we’ve noticed at Linamar are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 12%. 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 37%. So we’re very much inspired by what we’re seeing at Linamar thanks to its ability to profitably reinvest capital.
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 Linamar has. Since the stock has returned a solid 92% to shareholders over the last five years, it’s fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you’d like to know about the risks facing Linamar, we’ve discovered 3 warning signs that you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.