I am writing today to help inform people who are new to the stock market and want a simplistic look at the return on aovo Touristik AG (MUN:A8N) stock.
aovo Touristik stock represents an ownership share in the company. Your equity share is granted in return for the capital provided to the business to operate, and in order for an investment to be successful the business has to create earnings from the funds that make up this capital. You need to pay attention to this because your return on investment is linked to dividends and internal investments to improve the business, which can only occur if the company is expected to produce adequate earnings with the capital that has been provided. Therefore, looking at how efficiently aovo Touristik is able to use capital to create earnings will help us understand your potential return. Investors use many different metrics but the analysis below focuses on return on capital employed (ROCE). Let’s take a look at what it can tell us.
Calculating Return On Capital Employed for A8N
As an investor you have many alternative companies to choose from, which means there is an opportunity cost in any investment you make in the form of a foregone investment in another company. The cost of missing out on another opportunity comes in the form of the potential long term gain you could’ve received, which is dependent on the gap between the return on capital you could’ve achieved and that of the company you invested in. Hence, capital returns are very important, and should be examined before you invest in conjunction with a certain benchmark that represents the minimum return you require to be compensated for the risk of missing out on other potentially lucrative investments. To determine aovo Touristik’s capital return we will use ROCE, which tells us how much the company makes from the capital employed in their operations (for things like machinery, wages etc). I have calculated aovo Touristik’s ROCE for you below:
ROCE Calculation for A8N
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = €488.72k ÷ (€5.94m – €5.51m) = 112.70%
A8N’s 112.70% ROCE means that for every €100 you invest, the company creates €112.7. A good ROCE hurdle you should aim for in your investments is 15%, which is exceeded by A8N and means the company creates an excellent amount of earnings on capital employed. If this can be sustained with good reinvestment opportunities or dividend distributions your capital has the potential to compound extremely well over time.
Before moving forward
The encouraging ROCE is good news for aovo Touristik investors if the company is able to maintain strong earnings and control their capital needs. But if this doesn’t occur, A8N’s ROCE may deteriorate, in which case your money is better invested elsewhere. Therefore, investors need to be confident in the trend of the inputs in the formula above, so that aovo Touristik will continue the solid returns. If you go back three years, you’ll find that A8N’s ROCE has increased from -63.90%. Over the same period, EBT went from -€335.57k to €488.72k and the amount of capital employed has declined because of a greater amount of current liabilities used (meaning the company has used more borrowed money than shareholder capital to produce earnings) , which means that ROCE has increased as a result of aovo Touristik’s ability to grow earnings in conjunction with increased capital efficiency.
aovo Touristik’s ROCE has increased in the recent past and is above a benchmark that makes the company a potentially attractive stock that can achieve a solid return on investment. This is an ideal situation to be in, but return on capital employed is a static metric that should be looked at in conjunction with other fundamental indicators like future prospects and valuation. Without considering these fundamentals, you cannot be sure if this trend will continue or if you are getting a good deal for the future returns you are paying for. aovo Touristik’s fundamentals can be explored with the links I’ve provided below if you are interested, otherwise you can start looking at other high-performing stocks.
- Future Outlook: What are well-informed industry analysts predicting for A8N’s future growth? Take a look at our free research report of analyst consensus for A8N’s outlook.
- Valuation: What is A8N worth today? Is the stock undervalued, even if its ROCE is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether A8N is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.