Alexanderwerk (FRA:ALXA) Is Investing Its Capital With Increasing Efficiency

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Speaking of which, we noticed some great changes in Alexanderwerk's (FRA:ALXA) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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 Alexanderwerk, this is the formula:

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

0.41 = €11m ÷ (€41m - €13m) (Based on the trailing twelve months to June 2023).

So, Alexanderwerk has an ROCE of 41%. In absolute terms that's a great return and it's even better than the Machinery industry average of 11%.

Check out our latest analysis for Alexanderwerk

Above you can see how the current ROCE for Alexanderwerk compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Alexanderwerk for free.

The Trend Of ROCE

We like the trends that we're seeing from Alexanderwerk. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 41%. Basically the business is earning more per dollar of capital invested and in addition to that, 101% more capital is being employed now too. So we're very much inspired by what we're seeing at Alexanderwerk thanks to its ability to profitably reinvest capital.

What We Can Learn From Alexanderwerk's ROCE

In summary, it's great to see that Alexanderwerk can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 105% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Alexanderwerk can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 3 warning signs with Alexanderwerk and understanding them should be part of your investment process.

Alexanderwerk is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.