Investors Will Want Schneider Electric's (EPA:SU) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Schneider Electric (EPA:SU) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Schneider Electric is:

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

0.14 = €6.1b ÷ (€61b - €17b) (Based on the trailing twelve months to June 2024).

Thus, Schneider Electric has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electrical industry average of 13%.

View our latest analysis for Schneider Electric

Above you can see how the current ROCE for Schneider Electric compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Schneider Electric .

So How Is Schneider Electric's ROCE Trending?

Investors would be pleased with what's happening at Schneider Electric. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 31% more capital is being employed now too. So we're very much inspired by what we're seeing at Schneider Electric thanks to its ability to profitably reinvest capital.

What We Can Learn From Schneider Electric's ROCE

All in all, it's terrific to see that Schneider Electric is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for SU on our platform that is definitely worth checking out.

While Schneider Electric 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.