International Game Technology (NYSE:IGT) shareholders will want ROCE trajectory to continue

Did you know that there are financial metrics that can provide clues of a potential multi-bagger? Typically, we will want to notice a growth trend to return to on capital employed (ROCE) and at the same time, a based capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. With this in mind, we have noticed some promising trends in International game technology (NYSE:IGT) so let’s look a little deeper.

What is return on capital employed (ROCE)?

For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. Analysts use this formula to calculate it for International Game Technology:

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

0.085 = $811 million ÷ ($11 billion – $1.8 billion) (Based on the last twelve months to September 2021).

So, International Game Technology posted a ROCE of 8.5%. By itself, this is a low number, but it is around the average of 9.0% generated by the hotel industry.

See our latest analysis for International Game Technology

NYSE: IGT Return on Capital Employed January 19, 2022

Above, you can see how International Game Technology’s current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you wish, you can view analyst forecasts covering International Game Technology here for free.

The ROCE trend

We are quite satisfied with the evolution of ROCE at International Game Technology. We have found that returns on capital employed over the past five years have increased by 50%. This is not bad, because it indicates that for every dollar invested (capital used), the company increases the amount earned from that dollar. Interestingly, the company may be becoming more efficient as it uses 26% less capital than five years ago. International Game Technology may sell some assets, so it’s worth checking to see if the company has plans for future investments to further increase returns.

What we can learn from International Game Technology’s ROCE

Ultimately, International Game Technology has proven its capital allocation skills to be good with these higher returns with less capital. Investors may not yet be impressed by the favorable underlying trends, as over the past five years the stock has only returned 20% to shareholders. Given this, we would take a closer look at this stock in case it has more traits that can make it multiply in the long run.

One more thing we spotted 1 warning sign against International Game Technology that might be of interest to you.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.