Returns On Capital - An Important Metric For Allterco AD (BUL:A4L)

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Allterco AD's (BUL:A4L) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Allterco AD is:

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

0.33 = лв13m ÷ (лв45m - лв6.0m) (Based on the trailing twelve months to September 2020).

Therefore, Allterco AD has an ROCE of 33%. In absolute terms that's a great return and it's even better than the IT industry average of 12%.

Check out our latest analysis for Allterco AD

Historical performance is a great place to start when researching a stock so above you can see the gauge for Allterco AD's ROCE against it's prior returns. If you'd like to look at how Allterco AD has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Allterco AD Tell Us?

Allterco AD is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 33%. Basically the business is earning more per dollar of capital invested and in addition to that, 112% more capital is being employed now too. So we're very much inspired by what we're seeing at Allterco AD thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 13%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Allterco AD has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Allterco AD's ROCE

In summary, it's great to see that Allterco AD can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Allterco AD can keep these trends up, it could have a bright future ahead.

Allterco AD does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those is significant...

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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