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. 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. Speaking of which, we noticed some great changes in Autodesk's (NASDAQ:ADSK) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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 Autodesk:

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

0.18 = US$817m ÷ (US$8.3b - US$3.8b) (Based on the trailing twelve months to April 2022).

So, Autodesk has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Software industry.

See our latest analysis for Autodesk

Above you can see how the current ROCE for Autodesk 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 Autodesk here for free.

So How Is Autodesk's ROCE Trending?

The fact that Autodesk is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 18% which is a sight for sore eyes. In addition to that, Autodesk is employing 87% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a side note, Autodesk's current liabilities are still rather high at 46% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Autodesk's ROCE

In summary, it's great to see that Autodesk has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 76% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.