Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Fraport (ETR:FRA), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Fraport is:

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

0.041 = €697m ÷ (€19b - €2.2b) (Based on the trailing twelve months to March 2024).

So, Fraport has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 12%.

Check out our latest analysis for Fraport

Above you can see how the current ROCE for Fraport 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 analyst report for Fraport .

What Can We Tell From Fraport's ROCE Trend?

In terms of Fraport's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 6.3% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Fraport's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Fraport is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 40% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Fraport does have some risks though, and we've spotted 1 warning sign for Fraport that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.