The Return Trends At Ampco-Pittsburgh (NYSE:AP) Look Promising

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Speaking of which, we noticed some great changes in Ampco-Pittsburgh's (NYSE:AP) returns on capital, so let's have a look.

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 Ampco-Pittsburgh is:

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

0.0087 = US$3.2m ÷ (US$484m - US$119m) (Based on the trailing twelve months to September 2022).

Therefore, Ampco-Pittsburgh has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 18%.

See our latest analysis for Ampco-Pittsburgh

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Ampco-Pittsburgh, check out these free graphs here.

The Trend Of ROCE

Shareholders will be relieved that Ampco-Pittsburgh has broken into profitability. The company now earns 0.9% on its capital, because five years ago it was incurring losses. 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. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line

To bring it all together, Ampco-Pittsburgh has done well to increase the returns it's generating from its capital employed. Although the company may be facing some issues elsewhere since the stock has plunged 79% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

On a separate note, we've found 1 warning sign 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.