Akzo Nobel's (AMS:AKZA) Returns Have Hit A Wall

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Although, when we looked at Akzo Nobel (AMS:AKZA), it didn't seem to tick all of these boxes.

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Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Akzo Nobel:

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

0.087 = €876m ÷ (€15b - €4.8b) (Based on the trailing twelve months to March 2025).

Thus, Akzo Nobel has an ROCE of 8.7%. Even though it's in line with the industry average of 8.7%, it's still a low return by itself.

Check out our latest analysis for Akzo Nobel

In the above chart we have measured Akzo Nobel's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Akzo Nobel .

How Are Returns Trending?

Over the past five years, Akzo Nobel's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Akzo Nobel doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Akzo Nobel has been paying out a decent 42% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

What We Can Learn From Akzo Nobel's ROCE

In a nutshell, Akzo Nobel has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 17% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Akzo Nobel (of which 1 shouldn't be ignored!) that you should know about.

While Akzo Nobel 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.