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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. 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 Uber Technologies’ (NYSE:UBER) 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 Uber Technologies, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.07 = US$2.8b ÷ (US$51b – US$11b) (Based on the trailing twelve months to December 2024).
Thus, Uber Technologies has an ROCE of 7.0%. On its own, that’s a low figure but it’s around the 8.3% average generated by the Transportation industry.
In the above chart we have measured Uber Technologies’ 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 analyst report for Uber Technologies .
What Does the ROCE Trend For Uber Technologies Tell Us?
Uber Technologies has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 7.0% on its capital. Not only that, but the company is utilizing 52% more capital than before, but that’s to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Bottom Line On Uber Technologies’ ROCE
To the delight of most shareholders, Uber Technologies has now broken into profitability. And a remarkable 159% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.