Returns On Capital At Crane NXT (NYSE:CXT) Have Stalled

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Crane NXT (NYSE:CXT), it didn't seem to tick all of these boxes.

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

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 Crane NXT is:

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

0.15 = US$275m ÷ (US$2.1b - US$297m) (Based on the trailing twelve months to March 2024).

Therefore, Crane NXT has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 11% generated by the Electronic industry.

See our latest analysis for Crane NXT

In the above chart we have measured Crane NXT's 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 Crane NXT for free.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Crane NXT, with its capital employed and returns on that capital staying somewhat the same for the last two years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Crane NXT doesn't end up being a multi-bagger in a few years time.

What We Can Learn From Crane NXT's ROCE

We can conclude that in regards to Crane NXT's returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 8.7% over the last year. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a separate note, we've found 1 warning sign for Crane NXT you'll probably want to know about.

While Crane NXT 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.

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