Returns On Capital Are Showing Encouraging Signs At Aliaxis (EBR:094124352)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Aliaxis (EBR:094124352) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Aliaxis, this is the formula:

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

0.17 = €534m ÷ (€4.0b - €805m) (Based on the trailing twelve months to December 2021).

Therefore, Aliaxis has an ROCE of 17%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Building industry average of 14%.

See our latest analysis for Aliaxis

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Aliaxis has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The trends we've noticed at Aliaxis are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 24%. So we're very much inspired by what we're seeing at Aliaxis thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Aliaxis has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 83% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 3 warning signs we've spotted with Aliaxis (including 1 which is a bit unpleasant) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.