What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Elixirr International (LON:ELIX) so let's look a bit deeper.

Understanding 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. The formula for this calculation on Elixirr International is:

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

0.13 = UK£13m ÷ (UK£107m - UK£14m) (Based on the trailing twelve months to December 2021).

Thus, Elixirr International has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 14% generated by the Professional Services industry.

Check out our latest analysis for Elixirr International

In the above chart we have measured Elixirr International's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Elixirr International here for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Elixirr International. The numbers show that in the last two years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 60%. 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 Elixirr International's ROCE

In summary, it's great to see that Elixirr International can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a solid 14% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Elixirr International can keep these trends up, it could have a bright future ahead.

While Elixirr International looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ELIX is currently trading for a fair price.

While Elixirr International may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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