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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at AIXTRON (ETR:AIXA) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
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 AIXTRON is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = €120m ÷ (€1.0b - €205m) (Based on the trailing twelve months to September 2024).
Therefore, AIXTRON has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Semiconductor industry average of 14%.
Check out our latest analysis for AIXTRON
In the above chart we have measured AIXTRON's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for AIXTRON .
What Does the ROCE Trend For AIXTRON Tell Us?
Investors would be pleased with what's happening at AIXTRON. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 75%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
What We Can Learn From AIXTRON's ROCE
All in all, it's terrific to see that AIXTRON is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 75% return over the last five years. 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.
AIXTRON does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...