Air Products and Chemicals (NYSE:APD) Will Want To Turn Around Its Return Trends

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Air Products and Chemicals (NYSE:APD) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Air Products and Chemicals, this is the formula:

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

0.077 = US$2.8b ÷ (US$42b - US$4.8b) (Based on the trailing twelve months to June 2025).

Therefore, Air Products and Chemicals has an ROCE of 7.7%. On its own, that's a low figure but it's around the 9.2% average generated by the Chemicals industry.

Check out our latest analysis for Air Products and Chemicals

In the above chart we have measured Air Products and Chemicals' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Air Products and Chemicals .

How Are Returns Trending?

On the surface, the trend of ROCE at Air Products and Chemicals doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.7% from 10% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Air Products and Chemicals' ROCE

Bringing it all together, while we're somewhat encouraged by Air Products and Chemicals' reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 11% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about Air Products and Chemicals, we've spotted 4 warning signs, and 3 of them can't be ignored.

While Air Products and Chemicals isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.