We Like Alexanderwerk's (FRA:ALXA) Returns And Here's How They're Trending
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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Alexanderwerk (FRA:ALXA) looks great, so lets see what the trend can tell us.
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. Analysts use this formula to calculate it for Alexanderwerk:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.41 = €11m ÷ (€41m - €13m) (Based on the trailing twelve months to June 2023).
So, Alexanderwerk has an ROCE of 41%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.
View our latest analysis for Alexanderwerk
In the above chart we have measured Alexanderwerk'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 Alexanderwerk for free.
So How Is Alexanderwerk's ROCE Trending?
Alexanderwerk is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 41%. 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 101%. So we're very much inspired by what we're seeing at Alexanderwerk thanks to its ability to profitably reinvest capital.
Our Take On Alexanderwerk's ROCE
In summary, it's great to see that Alexanderwerk can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 111% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you want to continue researching Alexanderwerk, you might be interested to know about the 2 warning signs that our analysis has discovered.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.
