If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Lindsay Australia (ASX:LAU) so let's look a bit deeper.

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. To calculate this metric for Lindsay Australia, this is the formula:

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

0.14 = AU$48m ÷ (AU$550m - AU$201m) (Based on the trailing twelve months to June 2024).

Therefore, Lindsay Australia has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 7.0% it's much better.

See our latest analysis for Lindsay Australia

Above you can see how the current ROCE for Lindsay Australia 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 Lindsay Australia for free.

What The Trend Of ROCE Can Tell Us

Lindsay Australia is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 94%. So we're very much inspired by what we're seeing at Lindsay Australia thanks to its ability to profitably reinvest capital.

Our Take On Lindsay Australia's ROCE

All in all, it's terrific to see that Lindsay Australia is reaping the rewards from prior investments and is growing its capital base. And a remarkable 214% 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 Lindsay Australia can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Lindsay Australia that you might find interesting.

While Lindsay Australia 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.