Investors Will Want Airtificial Intelligence Structures' (BME:AI) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Speaking of which, we noticed some great changes in Airtificial Intelligence Structures' (BME:AI) returns on capital, so let's have a look.

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 Airtificial Intelligence Structures, this is the formula:

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

0.0041 = €447k ÷ (€199m - €91m) (Based on the trailing twelve months to June 2024).

So, Airtificial Intelligence Structures has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 4.3%.

Check out our latest analysis for Airtificial Intelligence Structures

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Airtificial Intelligence Structures.

How Are Returns Trending?

Like most people, we're pleased that Airtificial Intelligence Structures is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 0.4% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 35%. This could potentially mean that the company is selling some of its assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 46% of the business, which is more than it was five years ago. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

What We Can Learn From Airtificial Intelligence Structures' ROCE

In a nutshell, we're pleased to see that Airtificial Intelligence Structures has been able to generate higher returns from less capital. Considering the stock has delivered 22% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

On a separate note, we've found 1 warning sign for Airtificial Intelligence Structures you'll probably want to know about.

While Airtificial Intelligence Structures 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.

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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.