If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Green Brick Partners' (NYSE:GRBK) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Green Brick Partners, this is the formula:

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

0.23 = US$413m ÷ (US$2.1b - US$244m) (Based on the trailing twelve months to June 2024).

Therefore, Green Brick Partners has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

Check out our latest analysis for Green Brick Partners

In the above chart we have measured Green Brick Partners' 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 Green Brick Partners .

What Does the ROCE Trend For Green Brick Partners Tell Us?

We like the trends that we're seeing from Green Brick Partners. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 23%. 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 143%. So we're very much inspired by what we're seeing at Green Brick Partners thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Green Brick Partners is reaping the rewards from prior investments and is growing its capital base. And a remarkable 702% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Green Brick Partners we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.