Returns Are Gaining Momentum At Exasol (ETR:EXL)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Exasol's (ETR:EXL) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Exasol:

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

0.05 = €1.2m ÷ (€26m - €1.3m) (Based on the trailing twelve months to June 2025).

Therefore, Exasol has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Software industry average of 17%.

Check out our latest analysis for Exasol

In the above chart we have measured Exasol'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 Exasol .

The Trend Of ROCE

Shareholders will be relieved that Exasol has broken into profitability. The company now earns 5.0% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Exasol has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

One more thing to note, Exasol has decreased current liabilities to 5.1% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Exasol's ROCE

In summary, we're delighted to see that Exasol has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has dived 79% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

While Exasol looks impressive, no company is worth an infinite price. The intrinsic value infographic for EXL helps visualize whether it is currently trading for a fair price.

While Exasol 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.