Elvalhalcor Hellenic Copper and Aluminium Industry (ATH:ELHA) Might Be Having Difficulty Using Its Capital Effectively

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Elvalhalcor Hellenic Copper and Aluminium Industry (ATH:ELHA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Elvalhalcor Hellenic Copper and Aluminium Industry is:

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

0.058 = €107m ÷ (€2.5b - €671m) (Based on the trailing twelve months to September 2023).

Thus, Elvalhalcor Hellenic Copper and Aluminium Industry has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 11%.

Check out our latest analysis for Elvalhalcor Hellenic Copper and Aluminium Industry

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 Elvalhalcor Hellenic Copper and Aluminium Industry's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Elvalhalcor Hellenic Copper and Aluminium Industry's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 8.1% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

In summary, Elvalhalcor Hellenic Copper and Aluminium Industry is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Although the market must be expecting these trends to improve because the stock has gained 71% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to know some of the risks facing Elvalhalcor Hellenic Copper and Aluminium Industry we've found 4 warning signs (1 is concerning!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.