COBZ

CoBiz Financial Inc.

0.1100
USD
0.00%
0.1100
USD
0.00%
0.0000 0.0000
52 weeks
52 weeks

Mkt Cap 4.66M

Shares Out 42.40M

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Arista Networks (NYSE:ANET) Looks To Prolong Its Impressive Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Arista Networks' (NYSE:ANET) ROCE trend, we were very happy with what we saw. Understanding Return On Capital Employed (ROCE) For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Arista Networks: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.25 = US$1.1b ÷ (US$5.8b - US$1.3b) (Based on the trailing twelve months to June 2022). So, Arista Networks has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 8.5% earned by companies in a similar industry. In the above chart we have measured Arista Networks' 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 Arista Networks here for free. What The Trend Of ROCE Can Tell Us It's hard not to be impressed by Arista Networks' returns on capital. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 193% in that time. Now considering ROCE is an attractive 25%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models. In Conclusion... Arista Networks has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 195% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research. Like most companies, Arista Networks does come with some risks, and we've found 1 warning sign that you should be aware of. If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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