What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Boralex's (TSE:BLX) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Boralex is:

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

0.036 = CA$217m ÷ (CA$6.6b - CA$584m) (Based on the trailing twelve months to September 2023).

So, Boralex has an ROCE of 3.6%.  Even though it's in line with the industry average of 3.6%, it's still a low return by itself.

See our latest analysis for Boralex  TSX:BLX Return on Capital Employed January 8th 2024

In the above chart we have measured Boralex's 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 Boralex here for free.

What Can We Tell From Boralex's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 3.6%. The amount of capital employed has increased too, by 45%. So we're very much inspired by what we're seeing at Boralex thanks to its ability to profitably reinvest capital.

Our Take On Boralex's ROCE

All in all, it's terrific to see that Boralex is reaping the rewards from prior investments and is growing its capital base. And a remarkable 104% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Boralex can keep these trends up, it could have a bright future ahead.



One final note, you should learn about the  3 warning signs  we've spotted with Boralex (including 1 which is a bit unpleasant) .

If you want to search for solid companies with great earnings, check out this freelist of companies with good balance sheets and impressive 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.