The Return Trends At Avgol Industries 1953 (TLV:AVGL) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Avgol Industries 1953 (TLV:AVGL) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Avgol Industries 1953 is:

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

0.11 = US$46m ÷ (US$506m - US$107m) (Based on the trailing twelve months to September 2022).

Thus, Avgol Industries 1953 has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Luxury industry average of 9.9%.

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?

Avgol Industries 1953 has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 29% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. 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.

The Bottom Line On Avgol Industries 1953's ROCE

As discussed above, Avgol Industries 1953 appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Astute investors may have an opportunity here because the stock has declined 60% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Avgol Industries 1953 does have some risks though, and we've spotted 1 warning sign for Avgol Industries 1953 that you might be interested in.

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.