Capital Allocation Trends At Trimble (NASDAQ:TRMB) Aren't Ideal

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Trimble (NASDAQ:TRMB) and its ROCE trend, we weren't exactly thrilled.

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Understanding 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. The formula for this calculation on Trimble is:

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

0.063 = US$465m ÷ (US$8.9b - US$1.5b) (Based on the trailing twelve months to April 2025).

So, Trimble has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 11%.

See our latest analysis for Trimble

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

What Does the ROCE Trend For Trimble Tell Us?

When we looked at the ROCE trend at Trimble, we didn't gain much confidence. To be more specific, ROCE has fallen from 8.0% over the last five years. However it looks like Trimble might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

The Bottom Line On Trimble's ROCE

Bringing it all together, while we're somewhat encouraged by Trimble's reinvestment in its own business, we're aware that returns are shrinking. Although the market must be expecting these trends to improve because the stock has gained 68% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Trimble does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should know about.

While Trimble 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.