Investors Will Want Aurea's (EPA:AURE) Growth In ROCE To Persist

March 10, 2022
  •  Updated
June 14, 2022
ENXTPA:AURE
Source: Shutterstock

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Aurea (EPA:AURE) looks quite promising in regards to its trends of return on capital.

What is 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. To calculate this metric for Aurea, this is the formula:

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

0.063 = €7.3m ÷ (€184m - €67m) (Based on the trailing twelve months to June 2021).

Thus, Aurea has an ROCE of 6.3%. On its own, that's a low figure but it's around the 7.3% average generated by the Commercial Services industry.

View our latest analysis for Aurea

roce
ENXTPA:AURE Return on Capital Employed March 10th 2022

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 Aurea's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Aurea has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 1,053% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Aurea's ROCE

As discussed above, Aurea appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 103% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Aurea can keep these trends up, it could have a bright future ahead.

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

While Aurea 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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