Yahoo Finance Returns At Ashtead Technology Holdings (LON:AT.) Are On The Way Up
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Ashtead Technology Holdings (LON:AT.) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Ashtead Technology Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = UK£33m ÷ (UK£214m - UK£35m) (Based on the trailing twelve months to December 2023).
Thus, Ashtead Technology Holdings has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 15% generated by the Trade Distributors industry.
View our latest analysis for Ashtead Technology Holdings
In the above chart we have measured Ashtead Technology Holdings' 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 Ashtead Technology Holdings for free.
The Trend Of ROCE
We like the trends that we're seeing from Ashtead Technology Holdings. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 19%. The amount of capital employed has increased too, by 114%. So we're very much inspired by what we're seeing at Ashtead Technology Holdings thanks to its ability to profitably reinvest capital.
In Conclusion...
All in all, it's terrific to see that Ashtead Technology Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 131% to shareholders over the last year, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Ashtead Technology Holdings can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing Ashtead Technology Holdings, we've discovered 1 warning sign that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
