Raval ACS' (TLV:RVL) Returns Have Hit A Wall

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. So, when we ran our eye over Raval ACS' (TLV:RVL) trend of ROCE, we liked what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Raval ACS is:

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

0.16 = €26m ÷ (€276m - €110m) (Based on the trailing twelve months to December 2020).

Therefore, Raval ACS has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 6.6% it's much better.

See our latest analysis for Raval ACS

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

So How Is Raval ACS' ROCE Trending?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 107% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

In the end, Raval ACS has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 39% return to shareholders who held over that period. So to determine if Raval ACS is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

One more thing to note, we've identified 1 warning sign with Raval ACS and understanding this should be part of your investment process.

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.

If you decide to trade Raval ACS, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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