Azelis Group (EBR:AZE) Shareholders Will Want The ROCE Trajectory To Continue

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Azelis Group's (EBR:AZE) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Azelis Group:

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

0.079 = €389m ÷ (€5.8b - €819m) (Based on the trailing twelve months to December 2024).

Thus, Azelis Group has an ROCE of 7.9%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 11%.

See our latest analysis for Azelis Group

In the above chart we have measured Azelis Group's 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 Azelis Group .

What Can We Tell From Azelis Group's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.9%. 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 97%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Azelis Group's ROCE

To sum it up, Azelis Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 20% in the last three years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Azelis Group does come with some risks, and we've found 1 warning sign that you should be aware of.

While Azelis Group 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.