Yahoo Finance Shareholders Are Optimistic That C.H. Robinson Worldwide (NASDAQ:CHRW) Will Multiply In Value
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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of C.H. Robinson Worldwide (NASDAQ:CHRW) looks attractive right now, so lets see what the trend of returns can tell us.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on C.H. Robinson Worldwide is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.36 = US$1.4b ÷ (US$7.5b - US$3.5b) (Based on the trailing twelve months to June 2022).
Therefore, C.H. Robinson Worldwide has an ROCE of 36%. In absolute terms that's a great return and it's even better than the Logistics industry average of 14%.
View our latest analysis for C.H. Robinson Worldwide
In the above chart we have measured C.H. Robinson Worldwide'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.
So How Is C.H. Robinson Worldwide's ROCE Trending?
In terms of C.H. Robinson Worldwide's history of ROCE, it's quite impressive. The company has consistently earned 36% for the last five years, and the capital employed within the business has risen 83% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If C.H. Robinson Worldwide can keep this up, we'd be very optimistic about its future.
On a side note, C.H. Robinson Worldwide's current liabilities are still rather high at 47% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
Our Take On C.H. Robinson Worldwide's ROCE
In summary, we're delighted to see that C.H. Robinson Worldwide has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has followed suit returning a meaningful 44% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
If you want to know some of the risks facing C.H. Robinson Worldwide we've found 5 warning signs (3 are significant!) that you should be aware of before investing here.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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