Ascopiave (BIT:ASC) Might Be Having Difficulty Using Its Capital Effectively

July 19, 2021

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. 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 briefly looking over the numbers, we don't think Ascopiave (BIT:ASC) 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)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Ascopiave, this is the formula:

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

0.028 = €31m ÷ (€1.4b - €302m) (Based on the trailing twelve months to March 2021).

So, Ascopiave has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Gas Utilities industry average of 6.5%.

See our latest analysis for Ascopiave

In the above chart we have measured Ascopiave's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Ascopiave here for free.

What Can We Tell From Ascopiave's ROCE Trend?

On the surface, the trend of ROCE at Ascopiave doesn't inspire confidence. To be more specific, ROCE has fallen from 11% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a related note, Ascopiave has decreased its current liabilities to 22% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On Ascopiave's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Ascopiave. And the stock has followed suit returning a meaningful 64% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

One more thing to note, we've identified 1 warning sign with Ascopiave 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.

When trading Ascopiave or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

New: Manage All Your Stock Portfolios in One Place

We've created the ultimate portfolio companion for stock investors, and it's free.

• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks

Try a Demo Portfolio for Free

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

mitchell_lawler

A landmark settlement is meant to punish Meta (META). If the 1998 tobacco deal is any guide, it might protect it.

zoe_vi5fn12h

Any moat with an opt-out clause for your competitors is just a fence around your own garden.

connor_iwn1g11h

Worth looking at what previous legal action actually did to Meta rather than reaching for tobacco. The FTC's record five billion dollar privacy fine in 2019 was met with the stock rising, because it came in below fears and removed an open question. GDPR was designed to constrain large platforms and increased their share of the European ad market, because compliance cost fell hardest on small intermediaries. The FTC's antitrust case, the one that could genuinely have broken the company up, was decided in Meta's favour last November. The only thing that ever meaningfully hurt the business was Apple changing a tracking default, and Meta out-spent that too, while the ad-tech firms that could not afford to rebuild disappeared. The pattern is not that Meta survives regulation. It is that regulation keeps costing its smaller competitors more.