Returns At écomiam (EPA:ALECO) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at écomiam (EPA:ALECO) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for écomiam, this is the formula:

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

0.034 = €446k ÷ (€18m - €4.8m) (Based on the trailing twelve months to March 2021).

Therefore, écomiam has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 11%.

Check out our latest analysis for écomiam

In the above chart we have measured écomiam's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is écomiam's ROCE Trending?

écomiam has recently broken into profitability so their prior investments seem to be paying off. About two years ago the company was generating losses but things have turned around because it's now earning 3.4% on its capital. Not only that, but the company is utilizing 479% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 27%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Key Takeaway

To the delight of most shareholders, écomiam has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 19% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.

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

While écomiam 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.