Investors Will Want Art's-Way Manufacturing's (NASDAQ:ARTW) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Art's-Way Manufacturing's (NASDAQ:ARTW) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

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. 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)

0.058 = US$843k ÷ (US$21m - US$6.5m) (Based on the trailing twelve months to February 2025).

Thus, Art's-Way Manufacturing has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Machinery industry average of 11%.

Check out 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're interested in investigating Art's-Way Manufacturing's past further, check out this free graph covering Art's-Way Manufacturing's past earnings, revenue and cash flow.

What Can We Tell From Art's-Way Manufacturing's ROCE Trend?

We're delighted to see that Art's-Way Manufacturing is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 5.8%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In Conclusion...

To bring it all together, Art's-Way Manufacturing has done well to increase the returns it's generating from its capital employed. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Art's-Way Manufacturing does come with some risks, and we've found 1 warning sign that you should be aware of.

While Art's-Way Manufacturing may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.