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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Energizer Holdings' (NYSE:ENR) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Energizer Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$469m ÷ (US$4.2b - US$701m) (Based on the trailing twelve months to June 2024).
Therefore, Energizer Holdings has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 17% generated by the Household Products industry.
Above you can see how the current ROCE for Energizer Holdings 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 Energizer Holdings for free.
How Are Returns Trending?
You'd find it hard not to be impressed with the ROCE trend at Energizer Holdings. The data shows that returns on capital have increased by 57% over the trailing five years. The company is now earning US$0.1 per dollar of capital employed. In regards to capital employed, Energizer Holdings appears to been achieving more with less, since the business is using 21% less capital to run its operation. Energizer Holdings may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
The Key Takeaway
In a nutshell, we're pleased to see that Energizer Holdings has been able to generate higher returns from less capital. Given the stock has declined 20% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
If you want to know some of the risks facing Energizer Holdings we've found 3 warning signs (1 is a bit concerning!) that you should be aware of before investing here.
While Energizer Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
