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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Acadian Timber (TSE:ADN), we don't think it's current trends fit the mold of a multi-bagger.
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. Analysts use this formula to calculate it for Acadian Timber:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.047 = CA$25m ÷ (CA$585m - CA$62m) (Based on the trailing twelve months to September 2024).
Thus, Acadian Timber has an ROCE of 4.7%. Even though it's in line with the industry average of 4.7%, it's still a low return by itself.
View our latest analysis for Acadian Timber
Above you can see how the current ROCE for Acadian Timber 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 analyst report for Acadian Timber .
The Trend Of ROCE
There hasn't been much to report for Acadian Timber's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Acadian Timber doesn't end up being a multi-bagger in a few years time. That probably explains why Acadian Timber has been paying out 143% of its earnings as dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.
The Key Takeaway
We can conclude that in regards to Acadian Timber's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 46% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
On a separate note, we've found 2 warning signs for Acadian Timber you'll probably want to know about.