Aspen Aerogels (NYSE:ASPN) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So on that note, Aspen Aerogels (NYSE:ASPN) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Aspen Aerogels, this is the formula:

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

0.074 = US$58m ÷ (US$895m - US$110m) (Based on the trailing twelve months to December 2024).

Thus, Aspen Aerogels has an ROCE of 7.4%. On its own, that's a low figure but it's around the 8.4% average generated by the Chemicals industry.

Check out our latest analysis for Aspen Aerogels

In the above chart we have measured Aspen Aerogels' 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 Aspen Aerogels for free.

What Does the ROCE Trend For Aspen Aerogels Tell Us?

Aspen Aerogels has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 7.4% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Aspen Aerogels is utilizing 974% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 12%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Aspen Aerogels has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

Overall, Aspen Aerogels gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, Aspen Aerogels does come with some risks, and we've found 1 warning sign that you should be aware of.

While Aspen Aerogels 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.