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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. 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 ran our eye over Spirax Group's (LON:SPX) trend of ROCE, we liked what we saw.
Our free stock report includes 1 warning sign investors should be aware of before investing in Spirax Group. Read for free now.
What Is 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. Analysts use this formula to calculate it for Spirax Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = UK£298m ÷ (UK£2.6b - UK£533m) (Based on the trailing twelve months to December 2024).
So, Spirax Group has an ROCE of 14%. That's a pretty standard return and it's in line with the industry average of 14%.
View our latest analysis for Spirax Group
Above you can see how the current ROCE for Spirax Group 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 Spirax Group for free.
What Can We Tell From Spirax Group's ROCE Trend?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 46% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Spirax Group has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On Spirax Group's ROCE
In the end, Spirax Group has proven its ability to adequately reinvest capital at good rates of return. However, despite the favorable fundamentals, the stock has fallen 28% over the last five years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.
Like most companies, Spirax Group does come with some risks, and we've found 1 warning sign that you should be aware of.