The Returns At Keysight Technologies (NYSE:KEYS) Aren't Growing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Keysight Technologies (NYSE:KEYS) looks decent, right now, so lets see what the trend of returns can tell us.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Keysight Technologies, this is the formula:

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

0.16 = US$1.1b ÷ (US$9.0b - US$2.0b) (Based on the trailing twelve months to April 2024).

Thus, Keysight Technologies has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 11% generated by the Electronic industry.

View 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 .

What Can We Tell From Keysight Technologies' ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has employed 49% more capital in the last five years, and the returns on that capital have remained stable at 16%. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

To sum it up, Keysight Technologies has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 66% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you're still interested in Keysight Technologies it's worth checking out our FREE intrinsic value approximation for KEYS to see if it's trading at an attractive price in other respects.

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.

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