Returns At Alumil Rom Industry (BVB:ALU) Are On The Way Up

There are a few key trends to look for if we want to identify the next 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Alumil Rom Industry (BVB:ALU) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Alumil Rom Industry:

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

0.082 = RON5.1m ÷ (RON69m - RON6.8m) (Based on the trailing twelve months to December 2020).

So, Alumil Rom Industry has an ROCE of 8.2%. On its own, that's a low figure but it's around the 9.7% average generated by the Metals and Mining industry.

Check out 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.

So How Is Alumil Rom Industry's ROCE Trending?

Alumil Rom Industry has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 74% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a related note, the company's ratio of current liabilities to total assets has decreased to 9.8%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line

To bring it all together, Alumil Rom Industry has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 91% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Alumil Rom Industry can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 3 warning signs with Alumil Rom Industry (at least 2 which are potentially serious) , and understanding them would certainly be useful.

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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