We Like These Underlying Return On Capital Trends At Ros Agro (LON:AGRO)

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So on that note, Ros Agro (LON:AGRO) looks quite promising in regards to its trends of return on capital.

Understanding 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. The formula for this calculation on Ros Agro is:

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

0.18 = ₽41b ÷ (₽370b - ₽138b) (Based on the trailing twelve months to March 2022).

Therefore, Ros Agro has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 10% generated by the Food industry.

View our latest analysis for Ros Agro

Above you can see how the current ROCE for Ros Agro 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 Ros Agro here for free.

So How Is Ros Agro's ROCE Trending?

Ros Agro is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 18%. The amount of capital employed has increased too, by 80%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 37% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

The Bottom Line

All in all, it's terrific to see that Ros Agro is reaping the rewards from prior investments and is growing its capital base. However the stock is down a substantial 96% in the last five years so there could be other areas of the business hurting its prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

Ros Agro does have some risks, we noticed 6 warning signs (and 4 which are potentially serious) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.