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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, International Game Technology (NYSE:IGT) looks quite promising in regards to its trends of return on capital.
Understanding 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. To calculate this metric for International Game Technology, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$981m ÷ (US$10b - US$1.9b) (Based on the trailing twelve months to September 2023).
Thus, International Game Technology has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Hospitality industry.
See our latest analysis for International Game Technology
Above you can see how the current ROCE for International Game Technology 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 International Game Technology here for free.
What The Trend Of ROCE Can Tell Us
We're pretty happy with how the ROCE has been trending at International Game Technology. The figures show that over the last five years, returns on capital have grown by 63%. The company is now earning US$0.1 per dollar of capital employed. In regards to capital employed, International Game Technology appears to been achieving more with less, since the business is using 26% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
The Key Takeaway
In a nutshell, we're pleased to see that International Game Technology has been able to generate higher returns from less capital. Since the stock has returned a solid 83% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
On a final note, we found 3 warning signs for International Game Technology (1 shouldn't be ignored) you should be aware of.
While International Game Technology 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.