Investors Will Want Auxilia's (WSE:AUX) Growth In ROCE To Persist

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. With that in mind, we've noticed some promising trends at Auxilia (WSE:AUX) so let's look a bit deeper.

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 Auxilia:

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

0.028 = zł1.1m ÷ (zł46m - zł6.0m) (Based on the trailing twelve months to March 2023).

Thus, Auxilia has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Consumer Services industry average of 7.9%.

View our latest analysis for Auxilia

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

The Trend Of ROCE

The fact that Auxilia is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 2.8% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Auxilia is utilizing 41% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

To the delight of most shareholders, Auxilia has now broken into profitability. However the stock is down a substantial 78% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

One more thing: We've identified 3 warning signs with Auxilia (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While Auxilia 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.