Akamai Technologies (NASDAQ:AKAM) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Akamai Technologies (NASDAQ:AKAM), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Akamai Technologies is:

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

0.084 = US$687m ÷ (US$10b - US$1.9b) (Based on the trailing twelve months to June 2024).

Therefore, Akamai Technologies has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the IT industry average of 11%.

Check out our latest analysis for Akamai Technologies

In the above chart we have measured Akamai Technologies' 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 Akamai Technologies for free.

How Are Returns Trending?

When we looked at the ROCE trend at Akamai Technologies, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 8.4% from 11% 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 may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Akamai Technologies' ROCE

To conclude, we've found that Akamai Technologies is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 8.3% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a final note, we've found 1 warning sign for Akamai Technologies that we think you should be aware of.

While Akamai Technologies isn't earning the highest return, check out this free list of companies that are 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.