If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Eaton (NYSE:ETN) looks quite promising in regards to its trends of return on capital.
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 Eaton is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.16 = US$5.1b ÷ (US$41b – US$9.5b) (Based on the trailing twelve months to September 2025).
Thus, Eaton has an ROCE of 16%. In absolute terms, that’s a satisfactory return, but compared to the Electrical industry average of 12% it’s much better.
See our latest analysis for Eaton
Above you can see how the current ROCE for Eaton 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 Eaton for free.
Eaton is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 24%. So we’re very much inspired by what we’re seeing at Eaton thanks to its ability to profitably reinvest capital.
All in all, it’s terrific to see that Eaton is reaping the rewards from prior investments and is growing its capital base. And a remarkable 233% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it’s worth researching the company further to see if these trends are likely to persist.
If you want to continue researching Eaton, you might be interested to know about the 1 warning sign that our analysis has discovered.
While Eaton 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.