To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Oxford Instruments' (LON:OXIG) trend of ROCE, we liked what we saw.

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What Is 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. To calculate this metric for Oxford Instruments, this is the formula:

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

0.18 = UK£74m ÷ (UK£605m - UK£183m) (Based on the trailing twelve months to March 2025).

Thus, Oxford Instruments has an ROCE of 18%.  On its own, that's a standard return, however it's much better than the 8.7% generated by the Electronic industry.

See our latest analysis for Oxford Instruments LSE:OXIG Return on Capital Employed July 23rd 2025

In the above chart we have measured Oxford Instruments' 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 Oxford Instruments  for free.

What Can We Tell From Oxford Instruments' ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 56% more capital in the last five years, and the returns on that capital have remained stable at 18%. 18% is a pretty standard return, and it provides some comfort knowing that Oxford Instruments has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 30% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From Oxford Instruments' ROCE

In the end, Oxford Instruments has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 46% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Story Continues

Like most companies, Oxford Instruments does come with some risks, and we've found 2 warning signs that you should be aware of.

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.

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