Finding a business that has the potential to grow significantly isn’t easy, but it is possible if we look at a few key financial metrics. First, we’ll want to see proof to return to on capital employed (ROCE) which is increasing, and on the other hand, a based capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. So when we ran our eyes Motorola Solutions (NYSE:MSI) ROCE trend, we really liked what we saw.
What is return on capital employed (ROCE)?
For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. Analysts use this formula to calculate it for Motorola Solutions:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.21 = $1.7 billion ÷ ($12 billion – $4.1 billion) (Based on the last twelve months to December 2021).
So, Motorola Solutions has a ROCE of 21%. That’s a fantastic return and not only that, it tops the 7.3% average earned by companies in a similar industry.
See our latest analysis for Motorola Solutions
Above, you can see how Motorola Solutions’ current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you want, you can check out analyst forecasts covering Motorola Solutions here for free.
What is the return trend?
We’d rather be happy with returns on capital like Motorola Solutions. Over the past five years, ROCE has remained relatively stable at around 21% and the company has deployed 40% more capital into its operations. With such high returns, it’s great that the company can continually reinvest its money at such attractive rates of return. If Motorola Solutions can continue like this, we would be very optimistic about its future.
The Key Takeaway
In short, we would say that Motorola Solutions has the makings of a multi-bagger since it has been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable return of 196% for those who have held it over the past five years. So while investors seem to recognize these promising trends, we still think the stock warrants further research.
Motorola Solutions does come with some risk, though, and we’ve spotted 3 warning signs for Motorola Solutions that might interest you.
Motorola Solutions is not the only stock to generate high returns. If you want to see more, check out our free list of companies with high returns on equity with strong fundamentals.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.