A Look Into AKWEL's (EPA:AKW) Impressive Returns On Capital

What are the early trends we should look for to identify a stock that could 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of AKWEL (EPA:AKW) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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 AKWEL:

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

0.21 = €139m ÷ (€877m - €223m) (Based on the trailing twelve months to June 2021).

Thus, AKWEL has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Auto Components industry average of 12%.

View our latest analysis for AKWEL

Above you can see how the current ROCE for AKWEL 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 AKWEL here for free.

The Trend Of ROCE

We'd be pretty happy with returns on capital like AKWEL. Over the past five years, ROCE has remained relatively flat at around 21% and the business has deployed 59% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If AKWEL can keep this up, we'd be very optimistic about its future.

What We Can Learn From AKWEL's ROCE

In short, we'd argue AKWEL has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Yet over the last five years the stock has declined 14%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

If you'd like to know about the risks facing AKWEL, we've discovered 1 warning sign that you should be aware of.

AKWEL 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.