Returns Are Gaining Momentum At Autodesk




If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. 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 Autodesk (NASDAQ:ADSK) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Autodesk, this is the formula:

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

0.13 = US$690m ÷ (US$8.5b - US$3.3b) (Based on the trailing twelve months to October 2021).

Thus, Autodesk has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 10% it's much better.

Above you can see how the current ROCE for Autodesk 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.

So How Is Autodesk's ROCE Trending?
We're delighted to see that Autodesk is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 13% on its capital. And unsurprisingly, like most companies trying to break into the black, Autodesk is utilizing 63% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Autodesk's ROCE
In summary, it's great to see that Autodesk has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 163% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 3 warning signs for Autodesk that we think you should be aware of.

While Autodesk 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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