KinderCare Learning Companies' (NYSE:KLC) Returns On Capital Are Heading Higher

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at KinderCare Learning Companies (NYSE:KLC) so let's look a bit deeper.

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

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. Analysts use this formula to calculate it for KinderCare Learning Companies:

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

0.0089 = US$30m ÷ (US$3.9b - US$470m) (Based on the trailing twelve months to September 2025).

Therefore, KinderCare Learning Companies has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Consumer Services industry average of 13%.

View our latest analysis for KinderCare Learning Companies

In the above chart we have measured KinderCare Learning Companies' 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 KinderCare Learning Companies .

The Trend Of ROCE

Shareholders will be relieved that KinderCare Learning Companies has broken into profitability. The company now earns 0.9% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by KinderCare Learning Companies has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Our Take On KinderCare Learning Companies' ROCE

In summary, we're delighted to see that KinderCare Learning Companies has been able to increase efficiencies and earn higher rates of return on the same amount of capital. However the stock is down a substantial 77% in the last year so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

On a final note, we've found 1 warning sign for KinderCare Learning Companies that we think you should be aware of.

While KinderCare Learning Companies isn't earning the highest return, check out this free list 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.