The Return Trends At Alumil Aluminium Industry (ATH:ALMY) Look Promising

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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 who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Alumil Aluminium Industry is:

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%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 11%.

See 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 of past earnings, revenue and cash flow.

So How Is Alumil Aluminium Industry's ROCE Trending?

The fact that Alumil Aluminium Industry 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 10% which is a sight for sore eyes. Not only that, but the company is utilizing 290% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, Alumil Aluminium Industry has decreased current liabilities to 32% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. 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.

What We Can Learn From Alumil Aluminium Industry's ROCE

Long story short, we're delighted to see that Alumil Aluminium Industry's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 3 warning signs we've spotted with Alumil Aluminium Industry (including 2 which are potentially serious) .

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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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.