Almendral (SNSE:ALMENDRAL) Shareholders Will Want The ROCE Trajectory To Continue

By
Simply Wall St
Published
May 14, 2022
SNSE:ALMENDRAL
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Almendral's (SNSE:ALMENDRAL) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Almendral, this is the formula:

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

0.065 = CL$292b ÷ (CL$5.7t - CL$1.2t) (Based on the trailing twelve months to March 2022).

Therefore, Almendral has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Wireless Telecom industry average of 8.5%.

View our latest analysis for Almendral

roce
SNSE:ALMENDRAL Return on Capital Employed May 14th 2022

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

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 41% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Almendral's ROCE

All in all, it's terrific to see that Almendral is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 33% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 1 warning sign facing Almendral that you might find interesting.

While Almendral 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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.