Investors Will Want Fugro's (AMS:FUR) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, Fugro (AMS:FUR) looks quite promising in regards to its trends of return on capital.

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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. The formula for this calculation on Fugro is:

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

0.16 = €310m ÷ (€2.6b - €705m) (Based on the trailing twelve months to December 2024).

Thus, Fugro has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 11% generated by the Construction industry.

See our latest analysis for Fugro

Above you can see how the current ROCE for Fugro compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Fugro .

What Can We Tell From Fugro's ROCE Trend?

We like the trends that we're seeing from Fugro. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 27% more capital is being employed now too. So we're very much inspired by what we're seeing at Fugro thanks to its ability to profitably reinvest capital.

The Bottom Line On Fugro's ROCE

To sum it up, Fugro has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 16% to its stockholders over the last three years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Fugro (of which 1 is a bit unpleasant!) that you should know about.

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.