We Like These Underlying Return On Capital Trends At Aliaxis (EBR:094124352)

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Aliaxis (EBR:094124352) so let's look a bit deeper.

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. The formula for this calculation on Aliaxis is:

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

0.16 = €576m ÷ (€4.6b - €953m) (Based on the trailing twelve months to December 2022).

Therefore, Aliaxis has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 14% generated by the Building industry.

See our latest analysis for Aliaxis

Historical performance is a great place to start when researching a stock so above you can see the gauge for Aliaxis' ROCE against it's prior returns. If you're interested in investigating Aliaxis' past further, check out this free graph of past earnings, revenue and cash flow.

SWOT Analysis for Aliaxis

What Does the ROCE Trend For Aliaxis Tell Us?

Aliaxis is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 53%. 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, Aliaxis 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 solid 75% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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 more thing: We've identified 3 warning signs with Aliaxis (at least 2 which are a bit unpleasant) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.