The Returns On Capital At Allane (FRA:LNSX) Don't Inspire Confidence

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Allane (FRA:LNSX) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Our free stock report includes 1 warning sign investors should be aware of before investing in Allane. Read for free now.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Allane, this is the formula:

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

0.007 = €12m ÷ (€2.3b - €595m) (Based on the trailing twelve months to September 2024).

So, Allane has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 7.1%.

View our latest analysis for Allane

Above you can see how the current ROCE for Allane 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 Allane .

The Trend Of ROCE

When we looked at the ROCE trend at Allane, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 0.7% from 4.4% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Allane's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Allane. These growth trends haven't led to growth returns though, since the stock has fallen 36% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Allane does have some risks though, and we've spotted 1 warning sign for Allane that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.