Returns on capital are remarkable for Olympic Steel (NASDAQ:ZEUS)


What trends should we look for if we want to identify stocks that can multiply in value over the long term? Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount of capital employed. This shows us that it is a compounding machine, capable of continuously reinvesting its profits back into the business and generating higher returns. Speaking of which, we’ve noticed big changes in Olympic steel (NASDAQ:ZEUS) returns on capital, so let’s take a look.

Return on capital employed (ROCE): what is it?

For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. To calculate this metric for Olympic Steel, here is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.24 = $205 million ÷ ($1.1 billion – $245 million) (Based on the last twelve months to June 2022).

So, Olympic Steel has a ROCE of 24%. In absolute terms, this is an excellent return and is even better than the 20% average for the metals and mining industry.

See our latest analysis for Olympic Steel


In the chart above, we measured Olympic Steel’s past ROCE against its past performance, but the future is arguably more important. If you wish, you can view analyst forecasts covering Olympic Steel here for free.

What does the ROCE trend tell us for Olympic Steel?

We love the trends we see at Olympic Steel. Data shows that capital returns have increased significantly over the past five years to 24%. The amount of capital employed also increased by 65%. Increasing returns on an increasing amount of capital are common among multi-baggers and that’s why we’re impressed.

What we can learn from Olympic Steel’s ROCE

In summary, Olympic Steel has proven that it can reinvest in the business and generate higher returns on that capital employed, which is great. And with a respectable 78% attributed to those who held the shares over the past five years, you could say these developments are starting to get the attention they deserve. Therefore, we think it would be worth checking whether these trends will continue.

Since virtually every business faces risks, it helps to be aware of them, and we’ve spotted 4 warning signs for Olympic steel (including 3 a little unpleasant!) that you need to know.

If you want to see other businesses earning high returns, check out our free list of companies earning high returns with strong balance sheets here.

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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.

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