Returns At Alumil Aluminium Industry (ATH:ALMY) Are On The Way Up

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Alumil Aluminium Industry (ATH:ALMY) so let's look a bit deeper.

Understanding 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 Alumil Aluminium Industry, this is the formula:

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

0.10 = €27m ÷ (€384m - €121m) (Based on the trailing twelve months to June 2023).

Thus, Alumil Aluminium Industry has an ROCE of 10%. That's a pretty standard return and it's in line with the industry average of 10%.

Check out our latest analysis for Alumil Aluminium Industry

Historical performance is a great place to start when researching a stock so above you can see the gauge for Alumil Aluminium Industry's ROCE against it's prior returns. If you're interested in investigating Alumil Aluminium Industry's past further, check out this free graph covering Alumil Aluminium Industry's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The fact that Alumil Aluminium Industry is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 10% on its capital. In addition to that, Alumil Aluminium Industry is employing 290% more capital than previously which is expected of a company that's trying to break into profitability. 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 32%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Alumil Aluminium Industry has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

Overall, Alumil Aluminium Industry gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Alumil Aluminium Industry can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 4 warning signs with Alumil Aluminium Industry (at least 1 which is concerning) , and understanding these would certainly be useful.

While Alumil Aluminium Industry may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.