Asturiana de Laminados' (BME:ELZ) Returns On Capital Not Reflecting Well On The Business

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Asturiana de Laminados (BME:ELZ) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Asturiana de Laminados:

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

0.0079 = €1.0m ÷ (€173m - €45m) (Based on the trailing twelve months to June 2023).

Therefore, Asturiana de Laminados has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 10%.

Check out our latest analysis for Asturiana de Laminados

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're interested in investigating Asturiana de Laminados' past further, check out this free graph covering Asturiana de Laminados' past earnings, revenue and cash flow.

How Are Returns Trending?

On the surface, the trend of ROCE at Asturiana de Laminados doesn't inspire confidence. Over the last five years, returns on capital have decreased to 0.8% from 1.9% five years ago. However it looks like Asturiana de Laminados might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that Asturiana de Laminados is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 27% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to know some of the risks facing Asturiana de Laminados we've found 4 warning signs (2 are significant!) that you should be aware of before investing here.

While Asturiana de Laminados 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. 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.