What We Make Of Agros Development Company Proodos' (CSE:AGRO) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Agros Development Company Proodos (CSE:AGRO) so let's look a bit deeper.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Agros Development Company Proodos, this is the formula:

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%. In absolute terms, that's a low return, but it's much better than the Hospitality industry average of 1.5%.

Check out 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're interested in investigating Agros Development Company Proodos' past further, check out 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. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 170% over the last five years. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Agros Development Company Proodos' ROCE

As discussed above, Agros Development Company Proodos appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up.

One more thing: We've identified 4 warning signs with Agros Development Company Proodos (at least 2 which make us uncomfortable) , and understanding these would certainly be useful.

While Agros Development Company Proodos isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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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