If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Aleatica. de's (BMV:ALEATIC) ROCE trend, we were pretty happy with what we saw.
Understanding 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 Aleatica. de is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = Mex$20b ÷ (Mex$198b - Mex$4.0b) (Based on the trailing twelve months to September 2020).
Thus, Aleatica. de has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Infrastructure industry average of 8.3% it's much better.
View our latest analysis for Aleatica. de
Historical performance is a great place to start when researching a stock so above you can see the gauge for Aleatica. de's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Aleatica. de, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 72% more capital in the last five years, and the returns on that capital have remained stable at 10%. 10% is a pretty standard return, and it provides some comfort knowing that Aleatica. de has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Key Takeaway
In the end, Aleatica. de has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock hasn't provided much growth to shareholders in the way of total returns. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.
Aleatica. de does have some risks though, and we've spotted 1 warning sign for Aleatica. de that you might be interested in.
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. 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.
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About BMV:ALEATIC *
Aleatica. de
Engages in the design and operation of highways and other mobility assets in Europe and Latin America.
Mediocre balance sheet with questionable track record.
