Investors Will Want Ampco-Pittsburgh's (NYSE:AP) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Ampco-Pittsburgh (NYSE:AP) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Ampco-Pittsburgh, this is the formula:

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

0.021 = US$9.2m ÷ (US$566m - US$126m) (Based on the trailing twelve months to March 2024).

Therefore, Ampco-Pittsburgh has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 9.1%.

Check out our latest analysis for Ampco-Pittsburgh

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

How Are Returns Trending?

Shareholders will be relieved that Ampco-Pittsburgh has broken into profitability. The company now earns 2.1% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Ampco-Pittsburgh 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. Because in the end, a business can only get so efficient.

Our Take On Ampco-Pittsburgh's ROCE

To sum it up, Ampco-Pittsburgh is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 67% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

On a separate note, we've found 2 warning signs for Ampco-Pittsburgh you'll probably want to know about.

While Ampco-Pittsburgh 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.