We Like These Underlying Return On Capital Trends At Axalta Coating Systems (NYSE:AXTA)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Axalta Coating Systems (NYSE:AXTA) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Axalta Coating Systems is:

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

0.13 = US$787m ÷ (US$7.4b - US$1.3b) (Based on the trailing twelve months to March 2025).

So, Axalta Coating Systems has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 10% it's much better.

Check out our latest analysis for Axalta Coating Systems

Above you can see how the current ROCE for Axalta Coating Systems compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Axalta Coating Systems .

What Can We Tell From Axalta Coating Systems' ROCE Trend?

Axalta Coating Systems has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 21% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Axalta Coating Systems' ROCE

To bring it all together, Axalta Coating Systems has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 39% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

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

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. 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.