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Should We Be Excited About The Trends Of Returns At Carlisle Companies (NYSE:CSL)?

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There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Carlisle Companies (NYSE:CSL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Carlisle Companies is:

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

0.10 = US$535m ÷ (US$5.8b - US$646m) (Based on the trailing twelve months to September 2020).

Therefore, Carlisle Companies has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 8.6% generated by the Industrials industry.

View our latest analysis for Carlisle Companies

roce
roce

Above you can see how the current ROCE for Carlisle Companies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Carlisle Companies here for free.

So How Is Carlisle Companies' ROCE Trending?

On the surface, the trend of ROCE at Carlisle Companies doesn't inspire confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 10%. However it looks like Carlisle Companies 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 may take some time before the company starts to see any change in earnings from these investments.

Our Take On Carlisle Companies' ROCE

To conclude, we've found that Carlisle Companies is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 82% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know about the risks facing Carlisle Companies, we've discovered 1 warning sign that you should be aware of.

While Carlisle Companies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.