Can Avgol Industries 1953 (TLV:AVGL) Continue To Grow Its Returns On Capital?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Avgol Industries 1953 (TLV:AVGL) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Avgol Industries 1953:

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

0.16 = US$61m ÷ (US$477m - US$89m) (Based on the trailing twelve months to September 2020).

So, Avgol Industries 1953 has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 8.2% it's much better.

Check out our latest analysis for Avgol Industries 1953

Historical performance is a great place to start when researching a stock so above you can see the gauge for Avgol Industries 1953's ROCE against it's prior returns. If you'd like to look at how Avgol Industries 1953 has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Avgol Industries 1953's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 23% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Avgol Industries 1953's ROCE

To sum it up, Avgol Industries 1953 is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 0.9% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Avgol Industries 1953 does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is 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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