Investors Will Want Ashinskiy metallurgical works' (MCX:AMEZ) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in Ashinskiy metallurgical works' (MCX:AMEZ) returns on capital, so let's have a look.

What is 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. Analysts use this formula to calculate it for Ashinskiy metallurgical works:

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

0.13 = ₽1.8b ÷ (₽18b - ₽4.7b) (Based on the trailing twelve months to December 2020).

Therefore, Ashinskiy metallurgical works has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 12%.

See our latest analysis for Ashinskiy metallurgical works

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ashinskiy metallurgical works' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Ashinskiy metallurgical works, check out these free graphs here.

So How Is Ashinskiy metallurgical works' ROCE Trending?

Ashinskiy metallurgical works has not disappointed with their ROCE growth. 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 71% over the last five years. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Ashinskiy metallurgical works' ROCE

As discussed above, Ashinskiy metallurgical works appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 257% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Ashinskiy metallurgical works, you might be interested to know about the 4 warning signs that our analysis has discovered.

While Ashinskiy metallurgical works 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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