Compass concept
Returns on capital
How much profit the business earns on the money invested to run it.
Definition
Returns on capital measure how efficiently a company converts the capital it employs into operating profit. High, sustained returns on capital signal a business that creates a lot of value from each dollar it invests.
Why it matters
A business that reinvests at high returns compounds owner wealth quickly. Low returns on capital mean growth destroys value rather than creating it.
Watch-outs
One strong year can be a fluke, look for high returns sustained across a full cycle, and check whether they're fading as the business scales.
Educational information only, not investment advice. Turtleway helps you understand what a metric or concept means; it does not tell you what to buy or sell.