Returns On Capital At Auxilia (WSE:AUX) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. That's why when we briefly looked at Auxilia's (WSE:AUX) ROCE trend, we were pretty happy with what we saw.

What is 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. Analysts use this formula to calculate it for Auxilia:

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

0.12 = zł5.2m ÷ (zł47m - zł3.4m) (Based on the trailing twelve months to December 2020).

So, Auxilia has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Services industry average of 13%.

View our latest analysis for Auxilia

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Auxilia has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 93% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that Auxilia has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

The main thing to remember is that Auxilia has proven its ability to continually reinvest at respectable rates of return. What's surprising though is that the stock has collapsed 73% over the last five years, so there might be other areas of the business hurting its prospects. In any case, we like the underlying trends and would look further into this stock.

On a final note, we found 4 warning signs for Auxilia (2 are a bit unpleasant) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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