Returns On Capital At Innospec (NASDAQ:IOSP) 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Innospec (NASDAQ:IOSP) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. The formula for this calculation on Innospec is:

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

0.14 = US$194m ÷ (US$1.7b - US$333m) (Based on the trailing twelve months to June 2024).

So, Innospec has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Chemicals industry.

View our latest analysis for Innospec

In the above chart we have measured Innospec'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 Innospec for free.

The Trend Of ROCE

There hasn't been much to report for Innospec's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Innospec to be a multi-bagger going forward.

The Bottom Line On Innospec's ROCE

We can conclude that in regards to Innospec's returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 30% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Innospec does have some risks though, and we've spotted 1 warning sign for Innospec that you might be interested in.

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. 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.