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. Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Costain Group’s (LON:COST) returns on capital, so let’s have a look.
AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part – they are all under $10bn in marketcap – there is still time to get in early.
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. To calculate this metric for Costain Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.18 = UK£46m ÷ (UK£535m – UK£275m) (Based on the trailing twelve months to June 2025).
So, Costain Group has an ROCE of 18%. In absolute terms, that’s a pretty normal return, and it’s somewhat close to the Construction industry average of 15%.
Check out our latest analysis for Costain Group
Above you can see how the current ROCE for Costain Group compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like to see what analysts are forecasting going forward, you should check out our free analyst report for Costain Group .
Costain Group has broken into the black (profitability) and we’re sure it’s a sight for sore eyes. The company now earns 18% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Costain Group has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it’d be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
On a side note, Costain Group’s current liabilities are still rather high at 51% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it’s not necessarily a bad thing, it can be beneficial if this ratio is lower.