What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Savers Value Village's (NYSE:SVV) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Savers Value Village is:

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

0.08 = US$134m ÷ (US$1.9b - US$216m) (Based on the trailing twelve months to September 2024).

Therefore, Savers Value Village has an ROCE of 8.0%. In absolute terms, that's a low return and it also under-performs the Multiline Retail industry average of 12%.

Check out our latest analysis for Savers Value Village

Above you can see how the current ROCE for Savers Value Village compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Savers Value Village .

What Does the ROCE Trend For Savers Value Village Tell Us?

The fact that Savers Value Village is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making four years ago but is is now generating 8.0% on its capital. Not only that, but the company is utilizing 101% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From Savers Value Village's ROCE

Long story short, we're delighted to see that Savers Value Village's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 38% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing Savers Value Village, we've discovered 1 warning sign that you should be aware of.

While Savers Value Village may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.