Returns On Capital Are Showing Encouraging Signs At Agros Development Company Proodos (CSE:AGRO)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Agros Development Company Proodos (CSE:AGRO) looks quite promising in regards to its trends of return on capital.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Agros Development Company Proodos:

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

0.035 = €359k ÷ (€11m - €1.1m) (Based on the trailing twelve months to June 2020).

Thus, Agros Development Company Proodos has an ROCE of 3.5%. On its own that's a low return, but compared to the average of 1.5% generated by the Hospitality industry, it's much better.

View our latest analysis for Agros Development Company Proodos

Historical performance is a great place to start when researching a stock so above you can see the gauge for Agros Development Company Proodos' ROCE against it's prior returns. If you'd like to look at how Agros Development Company Proodos 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 Agros Development Company Proodos Tell Us?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last five years, ROCE has grown 170% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

In summary, we're delighted to see that Agros Development Company Proodos has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to know some of the risks facing Agros Development Company Proodos we've found 5 warning signs (2 are a bit unpleasant!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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