The Return Trends At écomiam (EPA:ALECO) Look Promising

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at écomiam (EPA:ALECO) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for écomiam:

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).

Thus, écomiam has an ROCE of 3.4%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 10%.

View our latest analysis for écomiam

Above you can see how the current ROCE for écomiam compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering écomiam here for free.

What Can We Tell From écomiam's ROCE Trend?

We're delighted to see that écomiam is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making two years ago but is is now generating 3.4% on its capital. And unsurprisingly, like most companies trying to break into the black, écomiam is utilizing 479% more capital than it was two years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 27%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that écomiam has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On écomiam's ROCE

Overall, écomiam gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 56% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing: We've identified 4 warning signs with écomiam (at least 1 which is significant) , and understanding them would certainly be useful.

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.