Delfingen Industry's (EPA:ALDEL) Returns On Capital Not Reflecting Well On The Business

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Delfingen Industry (EPA:ALDEL), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Delfingen Industry is:

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

0.043 = €12m ÷ (€395m - €105m) (Based on the trailing twelve months to June 2024).

Therefore, Delfingen Industry has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 8.7%.

View our latest analysis for Delfingen Industry

Above you can see how the current ROCE for Delfingen Industry 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 Delfingen Industry .

What Can We Tell From Delfingen Industry's ROCE Trend?

In terms of Delfingen Industry's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 9.0% over the last five years. However it looks like Delfingen Industry 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.

What We Can Learn From Delfingen Industry's ROCE

Bringing it all together, while we're somewhat encouraged by Delfingen Industry's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 34% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you want to know some of the risks facing Delfingen Industry we've found 3 warning signs (1 is significant!) that you should be aware of before investing here.

While Delfingen Industry 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.