There's Been No Shortage Of Growth Recently For Ampco-Pittsburgh's (NYSE:AP) Returns On Capital

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. 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. 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 Ampco-Pittsburgh's (NYSE:AP) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Ampco-Pittsburgh is:

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

0.027 = US$11m ÷ (US$515m - US$125m) (Based on the trailing twelve months to June 2023).

Therefore, Ampco-Pittsburgh has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 10%.

View 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.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Ampco-Pittsburgh is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 2.7% on its capital. While returns have increased, the amount of capital employed by Ampco-Pittsburgh has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line 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 51% 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.

If you want to know some of the risks facing Ampco-Pittsburgh we've found 5 warning signs (2 are a bit concerning!) that you should be aware of before investing here.

While Ampco-Pittsburgh 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.