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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in John Wiley & Sons' (NYSE:WLY) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for John Wiley & Sons, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$223m ÷ (US$2.6b - US$561m) (Based on the trailing twelve months to October 2024).
Therefore, John Wiley & Sons has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.7% generated by the Media industry.
View our latest analysis for John Wiley & Sons
In the above chart we have measured John Wiley & Sons' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for John Wiley & Sons .
So How Is John Wiley & Sons' ROCE Trending?
John Wiley & Sons is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 21% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Bottom Line On John Wiley & Sons' ROCE
In summary, we're delighted to see that John Wiley & Sons has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 13% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
If you'd like to know about the risks facing John Wiley & Sons, we've discovered 2 warning signs that you should be aware of.