If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Simpson Manufacturing (NYSE:SSD) looks decent, right now, so lets see what the trend of returns can tell us.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Simpson Manufacturing:

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

0.18 = US$435m ÷ (US$2.7b - US$366m) (Based on the trailing twelve months to December 2024).

Thus, Simpson Manufacturing has an ROCE of 18%.  In absolute terms, that's a satisfactory return, but compared to the Building industry average of 15% it's much better.

Check out our latest analysis for Simpson Manufacturing NYSE:SSD Return on Capital Employed April 21st 2025

In the above chart we have measured Simpson Manufacturing's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Simpson Manufacturing .

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 153% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Simpson Manufacturing has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Simpson Manufacturing's ROCE

The main thing to remember is that Simpson Manufacturing has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 143% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Story Continues

While Simpson Manufacturing doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our  FREE intrinsic value estimation for SSD on our platform.

While Simpson Manufacturing isn't earning the highest return, check out this freelist 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.

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