Here's What To Make Of Kimball Electronics' (NASDAQ:KE) Decelerating Rates Of Return

If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Kimball Electronics' (NASDAQ:KE) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Kimball Electronics:

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

0.11 = US$78m ÷ (US$1.2b - US$453m) (Based on the trailing twelve months to December 2022).

So, Kimball Electronics has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 13% generated by the Electronic industry.

See our latest analysis for Kimball Electronics

Above you can see how the current ROCE for Kimball Electronics compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Kimball Electronics' ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has employed 103% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

To sum it up, Kimball Electronics has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 14% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

On a separate note, we've found 2 warning signs for Kimball Electronics you'll probably want to know about.

While Kimball Electronics may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.

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