Returns Are Gaining Momentum At Linamar (TSE:LNR)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 Linamar (TSE:LNR) and its trend of ROCE, we really liked what we saw.

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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. The formula for this calculation on Linamar is:

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

0.12 = CA$939m ÷ (CA$11b - CA$2.8b) (Based on the trailing twelve months to March 2025).

Therefore, Linamar has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Auto Components industry.

See our latest analysis for Linamar

In the above chart we have measured Linamar'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 Linamar .

So How Is Linamar's ROCE Trending?

We like the trends that we're seeing from Linamar. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. The amount of capital employed has increased too, by 37%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

To sum it up, Linamar 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 78% 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.

On a separate note, we've found 3 warning signs for Linamar you'll probably want to know about.

While Linamar 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.