Returns On Capital At ALSO Holding (VTX:ALSN) Have Hit The Brakes

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So, when we ran our eye over ALSO Holding's (VTX:ALSN) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 ALSO Holding is:

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

0.17 = €211m ÷ (€3.2b - €2.0b) (Based on the trailing twelve months to December 2023).

Thus, ALSO Holding has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 10% it's much better.

Check out our latest analysis for ALSO Holding

Above you can see how the current ROCE for ALSO Holding 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 ALSO Holding .

What Does the ROCE Trend For ALSO Holding Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 22% more capital in the last five years, and the returns on that capital have remained stable at 17%. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Another thing to note, ALSO Holding has a high ratio of current liabilities to total assets of 63%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On ALSO Holding's ROCE

In the end, ALSO Holding has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 126% 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.

ALSO Holding could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for ALSN on our platform quite valuable.

While ALSO Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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