Investors Will Want House of Agriculture Spiroy's (ATH:SPIR) Growth In ROCE To Persist

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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, House of Agriculture Spiroy (ATH:SPIR) looks quite promising in regards to its trends of return on capital.

We've discovered 1 warning sign about House of Agriculture Spiroy. View them for free.

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 House of Agriculture Spiroy, this is the formula:

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

0.014 = €216k ÷ (€36m - €20m) (Based on the trailing twelve months to December 2024).

Thus, House of Agriculture Spiroy has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Food industry average of 9.9%.

See our latest analysis for House of Agriculture Spiroy

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

The Trend Of ROCE

The fact that House of Agriculture Spiroy is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 1.4% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, House of Agriculture Spiroy is utilizing 113% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 56%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line

In summary, it's great to see that House of Agriculture Spiroy has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 20% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

House of Agriculture Spiroy does have some risks though, and we've spotted 1 warning sign for House of Agriculture Spiroy that you might be interested in.

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.