Our Take On The Returns On Capital At As Commercial Industrial Company of Computers and Toys (ATH:ASCO)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at As Commercial Industrial Company of Computers and Toys (ATH:ASCO), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.068 = €2.2m ÷ (€35m - €2.8m) (Based on the trailing twelve months to June 2020).

Therefore, As Commercial Industrial Company of Computers and Toys has an ROCE of 6.8%. In absolute terms, that's a low return and it also under-performs the Leisure industry average of 15%.

View 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'd like to look at how As Commercial Industrial Company of Computers and Toys has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is As Commercial Industrial Company of Computers and Toys' ROCE Trending?

When we looked at the ROCE trend at As Commercial Industrial Company of Computers and Toys, we didn't gain much confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 6.8%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On As Commercial Industrial Company of Computers and Toys' ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for As Commercial Industrial Company of Computers and Toys have fallen, meanwhile the business is employing more capital than it was five years ago. The market must be rosy on the stock's future because even though the underlying trends aren't too encouraging, the stock has soared 234%. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

As Commercial Industrial Company of Computers and Toys does have some risks though, and we've spotted 2 warning signs for As Commercial Industrial Company of Computers and Toys that you might be interested in.

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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