There has been no shortage of growth recently for Aliaxis’ (EBR: 094124352) Return on Capital
There are a few key trends to look out for if we want to identify the next multi-bagger. First, we’ll want to see proof come back on capital employed (ROCE) which is increasing, and on the other hand, a base capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. So when we looked Aliaxe (EBR:094124352) and its ROCE trend, we really liked what we saw.
Understanding return on capital employed (ROCE)
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Aliaxis is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.17 = €534m ÷ (€4.0bn – €805m) (Based on the last twelve months to December 2021).
So, Aliaxis has a ROCE of 17%. In absolute terms, that’s a pretty normal return, and it’s a bit close to the building industry average of 14%.
See our latest analysis for Aliaxis
Historical performance is a great starting point when researching a stock. So you can see Aliaxis’ ROCE gauge above against its past returns. If you want to investigate Aliaxis’ past further, check out this free chart of past profits, revenue and cash flow.
What is the return trend?
The trends we’ve noticed at Aliaxis are quite reassuring. Data shows that capital returns have increased significantly over the past five years to 17%. The company actually makes more money per dollar of capital used, and it should be noted that the amount of capital has also increased by 25%. This may indicate that there are many opportunities to invest capital internally and at ever higher rates, a common combination among multi-baggers.
What we can learn from Aliaxis ROCE
A company that increases its returns on capital and can constantly reinvest in itself is a highly sought-after characteristic, and that is what Aliaxis has. And investors seem to expect more in the future, as the stock has rewarded shareholders with a 94% return over the past five years. Therefore, we think it would be worth checking whether these trends will continue.
If you want to know more about Aliaxis, we spotted 2 warning signs, and 1 of them is concerning.
Although Aliaxis does not generate the highest yield, check this free list of companies that achieve high returns on equity with strong balance sheets.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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