To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Air Products and Chemicals (NYSE:APD) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

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 Air Products and Chemicals:

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

0.084 = US$2.8b ÷ (US$39b - US$5.2b) (Based on the trailing twelve months to March 2025).

Therefore, Air Products and Chemicals has an ROCE of 8.4%. In absolute terms, that's a low return but it's around the Chemicals industry average of 8.7%.

Check out our latest analysis for Air Products and Chemicals NYSE:APD Return on Capital Employed May 14th 2025

In the above chart we have measured Air Products and Chemicals' 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 Air Products and Chemicals  for free.

What Can We Tell From Air Products and Chemicals' ROCE Trend?

When we looked at the ROCE trend at Air Products and Chemicals, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 8.4% from 13% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Air Products and Chemicals' reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 31% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Story Continues

If you'd like to know more about Air Products and Chemicals, we've spotted  5 warning signs, and 2 of them are concerning.

While Air Products and Chemicals 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 freelist here.

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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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