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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of DICK'S Sporting Goods (NYSE:DKS) looks great, so lets see what the trend can tell us.

We've discovered 1 warning sign about DICK'S Sporting Goods. View them for free.

What Is Return On Capital Employed (ROCE)?

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 DICK'S Sporting Goods is:

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

0.20 = US$1.5b ÷ (US$10b - US$3.1b) (Based on the trailing twelve months to February 2025).

So, DICK'S Sporting Goods has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 13%.

See our latest analysis for DICK'S Sporting Goods

Above you can see how the current ROCE for DICK'S Sporting Goods compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering DICK'S Sporting Goods for free.

What Can We Tell From DICK'S Sporting Goods' ROCE Trend?

The trends we've noticed at DICK'S Sporting Goods are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 20%. Basically the business is earning more per dollar of capital invested and in addition to that, 62% more capital is being employed now too. So we're very much inspired by what we're seeing at DICK'S Sporting Goods thanks to its ability to profitably reinvest capital.

What We Can Learn From DICK'S Sporting Goods' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what DICK'S Sporting Goods has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if DICK'S Sporting Goods can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing DICK'S Sporting Goods that you might find interesting.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.