We're Watching These Trends At Auxilia (WSE:AUX)

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, the ROCE of Auxilia (WSE:AUX) looks decent, right now, so lets see what the trend of returns can tell us.

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 Auxilia is:

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

0.15 = zł5.8m ÷ (zł41m - zł3.8m) (Based on the trailing twelve months to September 2020).

Thus, Auxilia has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 17% generated by the Consumer Services industry.

See our latest analysis for Auxilia

In the above chart we have measured Auxilia's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Auxilia here for free.

So How Is Auxilia's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 464% in that time. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 9.2% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On Auxilia's ROCE

The main thing to remember is that Auxilia has proven its ability to continually reinvest at respectable rates of return. Despite these impressive fundamentals, the stock has collapsed 90% over the last three years, so there is likely other factors affecting the company's future prospects. In any case, we like the underlying trends and would look further into this stock.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Auxilia (of which 1 shouldn't be ignored!) 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. 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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