The Return Trends At Keysight Technologies (NYSE:KEYS) Look Promising

There are a few key trends to look for if we want to identify the next 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Keysight Technologies (NYSE:KEYS) looks quite promising in regards to its trends of return on capital.

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 Keysight Technologies is:

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

0.18 = US$1.3b ÷ (US$9.1b - US$2.1b) (Based on the trailing twelve months to January 2024).

Thus, Keysight Technologies has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 11% it's much better.

See our latest analysis for Keysight Technologies

In the above chart we have measured Keysight Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Keysight Technologies .

So How Is Keysight Technologies' ROCE Trending?

The trends we've noticed at Keysight Technologies are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 52%. So we're very much inspired by what we're seeing at Keysight Technologies thanks to its ability to profitably reinvest capital.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Keysight Technologies has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 68% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Keysight Technologies looks impressive, no company is worth an infinite price. The intrinsic value infographic for KEYS helps visualize whether it is currently trading for a fair price.

While Keysight Technologies may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.