Returns On Capital At American Axle & Manufacturing Holdings (NYSE:AXL) Paint A Concerning Picture

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after we looked into American Axle & Manufacturing Holdings (NYSE:AXL), the trends above didn't look too great.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for American Axle & Manufacturing Holdings, this is the formula:

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

0.064 = US$253m ÷ (US$5.1b - US$1.2b) (Based on the trailing twelve months to March 2025).

So, American Axle & Manufacturing Holdings has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 12%.

See our latest analysis for American Axle & Manufacturing Holdings

Above you can see how the current ROCE for American Axle & Manufacturing Holdings 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 American Axle & Manufacturing Holdings .

What The Trend Of ROCE Can Tell Us

The trend of returns that American Axle & Manufacturing Holdings is generating are raising some concerns. To be more specific, today's ROCE was 8.3% five years ago but has since fallen to 6.4%. In addition to that, American Axle & Manufacturing Holdings is now employing 20% less capital than it was five years ago. The fact that both are shrinking is an indication that the business is going through some tough times. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

The Key Takeaway

To see American Axle & Manufacturing Holdings reducing the capital employed in the business in tandem with diminishing returns, is concerning. It should come as no surprise then that the stock has fallen 33% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you want to know some of the risks facing American Axle & Manufacturing Holdings we've found 2 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

While American Axle & Manufacturing Holdings 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.