Investors Shouldn't Overlook Elton International Trading's (ATH:ELTON) Impressive Returns On Capital

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Elton International Trading's (ATH:ELTON) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Elton International Trading:

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

0.38 = €30m ÷ (€126m - €47m) (Based on the trailing twelve months to June 2023).

Thus, Elton International Trading has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 14%.

Check out our latest analysis for Elton International Trading

Historical performance is a great place to start when researching a stock so above you can see the gauge for Elton International Trading's ROCE against it's prior returns. If you'd like to look at how Elton International Trading has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Elton International Trading's ROCE Trend?

Elton International Trading is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 38%. The amount of capital employed has increased too, by 24%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

All in all, it's terrific to see that Elton International Trading is reaping the rewards from prior investments and is growing its capital base. And with a respectable 87% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Elton International Trading can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Elton International Trading, we've discovered 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.