Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. So on that note, Alumil Rom Industry (BVB:ALU) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What is it?
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 Alumil Rom Industry is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.079 = RON4.9m ÷ (RON71m - RON8.4m) (Based on the trailing twelve months to March 2021).
Therefore, Alumil Rom Industry has an ROCE of 7.9%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 11%.
View our latest analysis for Alumil Rom Industry
Historical performance is a great place to start when researching a stock so above you can see the gauge for Alumil Rom Industry's ROCE against it's prior returns. If you're interested in investigating Alumil Rom Industry's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
Alumil Rom Industry is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 41% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
One more thing to note, Alumil Rom Industry has decreased current liabilities to 12% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
The Key Takeaway
To sum it up, Alumil Rom Industry is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Alumil Rom Industry does have some risks, we noticed 3 warning signs (and 2 which can't be ignored) we think you should know about.
While Alumil Rom Industry isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
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About BVB:ALU
Alumil Rom Industry
Produces and sells aluminum profiles and accessories in Romania and internationally.
Flawless balance sheet with proven track record.
