The Returns At Avgol Industries 1953 (TLV:AVGL) Aren't Growing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Avgol Industries 1953 (TLV:AVGL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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)

0.17 = US$63m ÷ (US$464m - US$101m) (Based on the trailing twelve months to December 2020).

Therefore, Avgol Industries 1953 has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 8.4% it's much better.

See our latest analysis for Avgol Industries 1953

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Avgol Industries 1953, check out these free graphs here.

How Are Returns Trending?

Over the past five years, Avgol Industries 1953's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. 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.

The Bottom Line

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 investors appear hesitant that the trends will pick up because the stock has fallen 25% 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.

One more thing to note, we've identified 1 warning sign with Avgol Industries 1953 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.

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