Returns On Capital At Asturiana de Laminados (BME:ELZ) Paint A Concerning Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Asturiana de Laminados is:

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).

Thus, Asturiana de Laminados has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 8.2%.

Check out our latest analysis for Asturiana de Laminados

Historical performance is a great place to start when researching a stock so above you can see the gauge for Asturiana de Laminados' ROCE against it's prior returns. 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. To be more specific, ROCE has fallen from 1.9% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Asturiana de Laminados' ROCE

Bringing it all together, while we're somewhat encouraged by Asturiana de Laminados' reinvestment in its own business, we're aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 21% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know more about Asturiana de Laminados, we've spotted 5 warning signs, and 3 of them are concerning.

While Asturiana de Laminados 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.