Here's What To Make Of Avgol Industries 1953's (TLV:AVGL) Decelerating Rates Of Return

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. However, after investigating Avgol Industries 1953 (TLV:AVGL), we don't think it's current trends fit the mold of a multi-bagger.

What is 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 Avgol Industries 1953 is:

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

0.11 = US$42m ÷ (US$483m - US$112m) (Based on the trailing twelve months to March 2022).

So, Avgol Industries 1953 has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Luxury industry.

View 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?

Things have been pretty stable at Avgol Industries 1953, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Avgol Industries 1953 to be a multi-bagger going forward.

What We Can Learn From Avgol Industries 1953's ROCE

We can conclude that in regards to Avgol Industries 1953's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 57% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with Avgol Industries 1953 (including 2 which are a bit unpleasant) .

While Avgol Industries 1953 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.