As Commercial Industrial Company of Computers and Toys (ATH:ASCO) Will Be Hoping To Turn Its Returns On Capital Around

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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at As Commercial Industrial Company of Computers and Toys (ATH:ASCO) and its ROCE trend, we weren't exactly thrilled.

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 As Commercial Industrial Company of Computers and Toys, this is the formula:

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

0.12 = €4.1m ÷ (€41m - €6.2m) (Based on the trailing twelve months to December 2022).

Thus, As Commercial Industrial Company of Computers and Toys has an ROCE of 12%. In isolation, that's a pretty standard return but against the Leisure industry average of 17%, it's not as good.

See our latest analysis for As Commercial Industrial Company of Computers and Toys

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 As Commercial Industrial Company of Computers and Toys' past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at As Commercial Industrial Company of Computers and Toys doesn't inspire confidence. Over the last five years, returns on capital have decreased to 12% from 17% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On As Commercial Industrial Company of Computers and Toys' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that As Commercial Industrial Company of Computers and Toys is reinvesting for growth and has higher sales as a result. These trends are starting to be recognized by investors since the stock has delivered a 27% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you want to know some of the risks facing As Commercial Industrial Company of Computers and Toys we've found 4 warning signs (1 can't be ignored!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.