Under The Bonnet, Aristocrat Leisure's (ASX:ALL) Returns Look Impressive

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Aristocrat Leisure (ASX:ALL) we really liked what we saw.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Aristocrat Leisure:

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

0.21 = AU$2.0b ÷ (AU$11b - AU$1.7b) (Based on the trailing twelve months to March 2025).

Thus, Aristocrat Leisure has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 9.2%.

View our latest analysis for Aristocrat Leisure

Above you can see how the current ROCE for Aristocrat Leisure compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Aristocrat Leisure for free.

What Can We Tell From Aristocrat Leisure's ROCE Trend?

Investors would be pleased with what's happening at Aristocrat Leisure. Over the last five years, returns on capital employed have risen substantially to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 32% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, Aristocrat Leisure has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 144% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Aristocrat Leisure can keep these trends up, it could have a bright future ahead.

If you want to continue researching Aristocrat Leisure, you might be interested to know about the 1 warning sign that our analysis has discovered.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.