Some Investors May Be Worried About Anexo Group's (LON:ANX) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at Anexo Group (LON:ANX) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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. To calculate this metric for Anexo Group, this is the formula:

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

0.18 = UK£31m ÷ (UK£261m - UK£92m) (Based on the trailing twelve months to June 2024).

So, Anexo Group has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Consumer Services industry average of 11% it's much better.

See our latest analysis for Anexo Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Anexo Group's ROCE against it's prior returns. If you're interested in investigating Anexo Group's past further, check out this free graph covering Anexo Group's past earnings, revenue and cash flow .

What Can We Tell From Anexo Group's ROCE Trend?

On the surface, the trend of ROCE at Anexo Group doesn't inspire confidence. Over the last five years, returns on capital have decreased to 18% from 24% five years ago. However it looks like Anexo Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Anexo Group's ROCE

Bringing it all together, while we're somewhat encouraged by Anexo Group's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 61% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Anexo Group has the makings of a multi-bagger.

If you want to continue researching Anexo Group, you might be interested to know about the 4 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.