Returns On Capital Signal Tricky Times Ahead For Asturiana de Laminados (BME:ELZ)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Although, when we looked at Asturiana de Laminados (BME:ELZ), it didn't seem to tick all of these boxes.

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

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. 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).

Thus, 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 11%.

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'd like to look at how Asturiana de Laminados has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Asturiana de Laminados Tell Us?

In terms of Asturiana de Laminados' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 1.9% over the last five years. 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

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 in the last five years, the stock has given away 19% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to know some of the risks facing Asturiana de Laminados we've found 3 warning signs (2 don't sit too well with us!) that you should be aware of before investing here.

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.