Returns On Capital At Air Products and Chemicals (NYSE:APD) Have Stalled
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Air Products and Chemicals (NYSE:APD) looks decent, right now, so lets see what the trend of returns can tell us.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Air Products and Chemicals:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = US$2.5b ÷ (US$27b - US$3.5b) (Based on the trailing twelve months to September 2022).
Therefore, Air Products and Chemicals has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Chemicals industry average of 12%.
See our latest analysis for Air Products and Chemicals
Above you can see how the current ROCE for Air Products and Chemicals compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Air Products and Chemicals.
The Trend Of ROCE
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 48% in that time. 10% is a pretty standard return, and it provides some comfort knowing that Air Products and Chemicals has consistently earned this amount. 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.
Our Take On Air Products and Chemicals' ROCE
In the end, Air Products and Chemicals has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 103% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
If you want to continue researching Air Products and Chemicals, you might be interested to know about the 2 warning signs that our analysis has discovered.
While Air Products and Chemicals 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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