We Like These Underlying Return On Capital Trends At Azelis Group (EBR:AZE)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Azelis Group (EBR:AZE) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Azelis Group, this is the formula:

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

0.085 = €393m ÷ (€5.6b - €940m) (Based on the trailing twelve months to December 2023).

So, Azelis Group has an ROCE of 8.5%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 13%.

View 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're interested, you can view the analysts predictions in our free analyst report for Azelis Group .

What The Trend Of ROCE Can Tell Us

We're delighted to see that Azelis Group is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 8.5% on its capital. And unsurprisingly, like most companies trying to break into the black, Azelis Group is utilizing 101% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Azelis Group's ROCE

To the delight of most shareholders, Azelis Group has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 22% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Azelis Group, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Azelis Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.

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