Yahoo Finance Why You Should Care About iLearningEngines' (NASDAQ:AILE) Strong Returns On Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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, the ROCE of iLearningEngines (NASDAQ:AILE) looks attractive right now, so lets see what the trend of returns can tell us.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on iLearningEngines is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.25 = US$12m ÷ (US$64m - US$15m) (Based on the trailing twelve months to December 2022).
Therefore, iLearningEngines has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Software industry average of 7.3%.
See our latest analysis for iLearningEngines
In the above chart we have measured iLearningEngines' 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 iLearningEngines for free.
What Can We Tell From iLearningEngines' ROCE Trend?
iLearningEngines deserves to be commended in regards to it's returns. Over the past one year, ROCE has remained relatively flat at around 25% and the business has deployed 50% more capital into its operations. Now considering ROCE is an attractive 25%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.
What We Can Learn From iLearningEngines' ROCE
In short, we'd argue iLearningEngines has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. However, despite the favorable fundamentals, the stock has fallen 34% over the last year, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
One more thing: We've identified 5 warning signs with iLearningEngines (at least 4 which are a bit concerning) , and understanding them would certainly be useful.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.
