We're Watching These Trends At S.C. Artego (BVB:ARTE)

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of S.C. Artego (BVB:ARTE) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for S.C. Artego:

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

0.17 = RON15m ÷ (RON129m - RON38m) (Based on the trailing twelve months to September 2020).

Thus, S.C. Artego has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 1.6% generated by the Machinery industry.

View our latest analysis for S.C. Artego

Historical performance is a great place to start when researching a stock so above you can see the gauge for S.C. Artego's ROCE against it's prior returns. If you'd like to look at how S.C. Artego has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 27% in that time. 17% is a pretty standard return, and it provides some comfort knowing that S.C. Artego 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.

On a side note, S.C. Artego has done well to reduce current liabilities to 30% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On S.C. Artego's ROCE

The main thing to remember is that S.C. Artego has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 141% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

S.C. Artego does have some risks though, and we've spotted 3 warning signs for S.C. Artego 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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