If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at OPENLANE (NYSE:KAR) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for OPENLANE, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = US$296m ÷ (US$4.8b - US$2.7b) (Based on the trailing twelve months to March 2025).
Thus, OPENLANE has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 10% generated by the Commercial Services industry.
See our latest analysis for OPENLANE
In the above chart we have measured OPENLANE'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 analyst report for OPENLANE .
What Can We Tell From OPENLANE's ROCE Trend?
You'd find it hard not to be impressed with the ROCE trend at OPENLANE. The figures show that over the last five years, returns on capital have grown by 102%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, OPENLANE appears to been achieving more with less, since the business is using 48% less capital to run its operation. OPENLANE may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 57% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.
What We Can Learn From OPENLANE's ROCE
In summary, it's great to see that OPENLANE has been able to turn things around and earn higher returns on lower amounts of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 44% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you want to continue researching OPENLANE, you might be interested to know about the 1 warning sign that our analysis has discovered.
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.