To The Moon

$Alphabet(GOOG)$

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a provenreturnon capital employed (ROCE) that is increasing, and secondly, an expandingbaseof capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes inAlphabet's(NASDAQ:GOOG.L) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Alphabet:

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

0.27 = US$79b ÷ (US$359b - US$64b)(Based on the trailing twelve months to December 2021).

Therefore,Alphabet has an ROCE of 27%.That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

NasdaqGS:GOOG.L Return on Capital Employed February 13th 2022

Above you can see how the current ROCE for Alphabet 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 Alphabethereforfree.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Alphabet. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 27%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 96%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Alphabet's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Alphabet has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.