The Returns At Siemens (NSE:SIEMENS) Aren't Growing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Siemens' (NSE:SIEMENS) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on Siemens is:

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

0.17 = ₹25b ÷ (₹232b - ₹87b) (Based on the trailing twelve months to June 2024).

Therefore, Siemens has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 13% generated by the Industrials industry.

See our latest analysis for Siemens

Above you can see how the current ROCE for Siemens 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 Siemens for free.

What Can We Tell From Siemens' ROCE Trend?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 17% and the business has deployed 61% more capital into its operations. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

In the end, Siemens has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 366% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Siemens could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for SIEMENS on our platform quite valuable.

While Siemens may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.