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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of IES Holdings (NASDAQ:IESC) we really liked what we saw.

What Is 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. The formula for this calculation on IES Holdings is:

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

0.42 = US$317m ÷ (US$1.3b - US$503m) (Based on the trailing twelve months to December 2024).

Thus, IES Holdings has an ROCE of 42%. In absolute terms that's a great return and it's even better than the Construction industry average of 13%.

Check out our latest analysis for IES Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for IES Holdings' ROCE against it's prior returns. If you'd like to look at how IES Holdings has performed in the past in other metrics, you can view this free graph of IES Holdings' past earnings, revenue and cash flow.

What Does the ROCE Trend For IES Holdings Tell Us?

We like the trends that we're seeing from IES Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 42%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 168%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On IES Holdings' ROCE

All in all, it's terrific to see that IES Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 1,059% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing IES Holdings that you might find interesting.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.