The Increasing ROCE Trend: A Promising Sign for Motorola Solutions
When it comes to identifying stocks that have the potential to multiply in value over the long term, there are a few key trends to look out for. One of the most important indicators is the company’s return on capital employed (ROCE) – a measure of how efficiently the company is using its capital to generate profits. In the case of Motorola Solutions (NYSE:MSI), we can see some very promising trends that suggest this company has a great business model and plenty of profitable reinvestment opportunities.
Understanding ROCE: How Motorola Solutions Measures Up
ROCE is a crucial metric that analysts use to evaluate a company’s profitability and efficiency. It measures the amount of pre-tax profits a company can generate from the capital it has employed in its business.For Motorola Solutions, the formula would be:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Based on the trailing twelve months to September 2023, Motorola Solutions has an impressive ROCE of 34%. This is a fantastic return, especially when compared to the industry average of 8.3%.
Positive ROCE Trends: What Motorola Solutions’ Data Reveals
Looking at the historical data, we can see that Motorola Solutions has been consistently increasing its ROCE over the past five years. This means that the company is earning more profit per dollar of capital invested. In addition to this, the company has also been expanding its base of capital employed by 22%. These trends are highly encouraging and suggest that Motorola Solutions has been able to identify and capitalize on profitable reinvestment opportunities.
However, it’s important to note that Motorola Solutions does have a relatively high current liabilities to total assets ratio of 43%. While this is not necessarily a bad thing, it does indicate a reliance on short-term creditors and suppliers. Investors should be aware of the potential risks associated with this.
Analyzing the ROCE Trend for Motorola Solutions
Looking at the future outlook, analysts predict continued growth for Motorola Solutions. The company’s ability to consistently reinvest capital at increasing rates of return bodes well for its long-term potential. Furthermore, over the last five years, investors have seen a remarkable 182% total return, indicating that they have high expectations for the company’s future performance.
Conclusion: The Long-Term Potential of Motorola Solutions
Overall, the trends we see in Motorola Solutions’ ROCE are very promising. The company has been able to generate increasing returns on its capital employed and has been actively expanding its base of capital. These are key ingredients for identifying stocks that have the potential to multiply in value over the long term. However, it’s important to conduct further due diligence and consider the potential risks associated with the company’s high level of debt and reliance on short-term creditors.
If you’re interested in learning more about the risks and opportunities for Motorola Solutions, you can view our full analysis here.
Note: This article by Simply Wall St is general in nature and does not constitute financial advice. It is based on historical data and analyst forecasts, using an unbiased methodology. It does not take into account individual objectives or financial situations. Simply Wall St has no position in any stocks mentioned.
Analyst comment
Positive news: The increasing ROCE trend for Motorola Solutions is a promising sign. The company has consistently increased its return on capital employed over the past five years and has been actively expanding its base of capital. This suggests the company has a great business model and plenty of profitable reinvestment opportunities.
Market prediction: Given the positive ROCE trends and the company’s ability to consistently reinvest capital at increasing rates of return, the market is likely to expect continued growth for Motorola Solutions. Investors have high expectations for the company’s future performance.
