Art's-Way Manufacturing (NASDAQ:ARTW) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Art's-Way Manufacturing (NASDAQ:ARTW) looks quite promising in regards to its trends of return on capital.

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Return On Capital Employed (ROCE): What Is It?

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 Art's-Way Manufacturing is:

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

0.085 = US$1.4m ÷ (US$22m - US$5.6m) (Based on the trailing twelve months to August 2025).

Thus, Art's-Way Manufacturing has an ROCE of 8.5%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 11%.

View our latest analysis for Art's-Way Manufacturing

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

The Trend Of ROCE

Art's-Way Manufacturing has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 8.5%, which is always encouraging. While returns have increased, the amount of capital employed by Art's-Way Manufacturing has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

As discussed above, Art's-Way Manufacturing appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Given the stock has declined 11% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 1 warning sign for Art's-Way Manufacturing that we think you should be aware of.

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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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.