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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at ACCO Brands (NYSE:ACCO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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. The formula for this calculation on ACCO Brands is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.074 = US$188m ÷ (US$3.1b - US$569m) (Based on the trailing twelve months to March 2022).
Thus, ACCO Brands has an ROCE of 7.4%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 8.1%.
See our latest analysis for ACCO Brands
Above you can see how the current ROCE for ACCO Brands 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 ACCO Brands.
What Does the ROCE Trend For ACCO Brands Tell Us?
Over the past five years, ACCO Brands' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if ACCO Brands doesn't end up being a multi-bagger in a few years time.
What We Can Learn From ACCO Brands' ROCE
In a nutshell, ACCO Brands has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 31% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think ACCO Brands has the makings of a multi-bagger.
If you want to know some of the risks facing ACCO Brands we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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