If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Elixirr International (LON:ELIX) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Elixirr International is:

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

0.14 = UK£14m ÷ (UK£121m - UK£18m) (Based on the trailing twelve months to June 2022).

Thus, Elixirr International has an ROCE of 14%.  That's a relatively normal return on capital, and it's around the 15% generated by the Professional Services industry.

View our latest analysis for Elixirr International  roce

Above you can see how the current ROCE for Elixirr International 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 Elixirr International here  for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Elixirr International. Over the last two years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 54%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On 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. And since the stock has fallen 30% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.



Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our  FREE intrinsic value estimation  that compares the share price and estimated value.

While Elixirr International isn't earning the highest return, check out this freelist of companies that are earning high returns on equity with solid balance sheets.

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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