Investors Met With Slowing Returns on Capital At Avgol Industries 1953 (TLV:AVGL)

There are a few key trends to look for if we want to identify the next multi-bagger. 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 Avgol Industries 1953 (TLV:AVGL) 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 Avgol Industries 1953 is:

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

0.083 = US$27m ÷ (US$440m - US$119m) (Based on the trailing twelve months to June 2023).

Therefore, Avgol Industries 1953 has an ROCE of 8.3%. In absolute terms, that's a low return but it's around the Luxury industry average of 9.2%.

See 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're interested in investigating Avgol Industries 1953's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Avgol Industries 1953's ROCE Trend?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 23% in that same period. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. In addition to that, since the ROCE doesn't scream "quality" at 8.3%, it's hard to get excited about these developments.

What We Can Learn From Avgol Industries 1953's ROCE

Overall, we're not ecstatic to see Avgol Industries 1953 reducing the amount of capital it employs in the business. And investors appear hesitant that the trends will pick up because the stock has fallen 63% in the last five years. 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.

Avgol Industries 1953 does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.