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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So while Amadeus FiRe (ETR:AAD) has a high ROCE right now, lets see what we can decipher from how returns are changing.
What Is 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 Amadeus FiRe:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = €55m ÷ (€330m - €99m) (Based on the trailing twelve months to December 2024).
Therefore, Amadeus FiRe has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 14%.
View our latest analysis for Amadeus FiRe
Above you can see how the current ROCE for Amadeus FiRe 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 Amadeus FiRe for free.
The Trend Of ROCE
In terms of Amadeus FiRe's historical ROCE movements, the trend isn't fantastic. To be more specific, while the ROCE is still high, it's fallen from 38% where it was five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
On a related note, Amadeus FiRe has decreased its current liabilities to 30% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.