iLearningEngines (NASDAQ:AILE) Knows How To Allocate Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at iLearningEngines' (NASDAQ:AILE) ROCE trend, we were very happy with what we saw.

What Is 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. Analysts use this formula to calculate it for iLearningEngines:

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

0.25 = US$12m ÷ (US$64m - US$15m) (Based on the trailing twelve months to December 2022).

Therefore, iLearningEngines has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 7.3% earned by companies in a similar industry.

Check out our latest analysis for iLearningEngines

Above you can see how the current ROCE for iLearningEngines 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 iLearningEngines .

The Trend Of ROCE

In terms of iLearningEngines' history of ROCE, it's quite impressive. Over the past one year, ROCE has remained relatively flat at around 25% and the business has deployed 50% more capital into its operations. Now considering ROCE is an attractive 25%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

Our Take On iLearningEngines' ROCE

iLearningEngines has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Yet over the last year the stock has declined 34%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

iLearningEngines does come with some risks though, we found 5 warning signs in our investment analysis, and 4 of those shouldn't be ignored...

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.