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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So when we looked at Acushnet Holdings (NYSE:GOLF) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Acushnet Holdings:

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

0.16 = US$289m ÷ (US$2.3b - US$516m) (Based on the trailing twelve months to September 2024).

So, Acushnet Holdings has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Leisure industry average of 10% it's much better.

See our latest analysis for Acushnet Holdings

In the above chart we have measured Acushnet Holdings' 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 Acushnet Holdings .

What Can We Tell From Acushnet Holdings' ROCE Trend?

The trends we've noticed at Acushnet Holdings are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 24% more capital is being employed now too. So we're very much inspired by what we're seeing at Acushnet Holdings thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Acushnet Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 169% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Acushnet Holdings can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Acushnet Holdings that we think you should be aware of.

While Acushnet Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.