Returns At Alan Allman Associates (EPA:AAA) Appear To Be Weighed Down

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Alan Allman Associates (EPA:AAA), we don't think it's current trends fit the mold of a multi-bagger.

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

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 Alan Allman Associates:

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

0.099 = €17m ÷ (€328m - €155m) (Based on the trailing twelve months to June 2025).

So, Alan Allman Associates has an ROCE of 9.9%. Even though it's in line with the industry average of 10%, it's still a low return by itself.

Check out our latest analysis for Alan Allman Associates

In the above chart we have measured Alan Allman Associates' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Alan Allman Associates for free.

So How Is Alan Allman Associates' ROCE Trending?

The returns on capital haven't changed much for Alan Allman Associates in recent years. The company has consistently earned 9.9% for the last four years, and the capital employed within the business has risen 122% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Another thing to note, Alan Allman Associates has a high ratio of current liabilities to total assets of 47%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Alan Allman Associates' ROCE

In summary, Alan Allman Associates has simply been reinvesting capital and generating the same low rate of return as before. And in the last three years, the stock has given away 66% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Alan Allman Associates has the makings of a multi-bagger.

One more thing: We've identified 2 warning signs with Alan Allman Associates (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

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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.