Yahoo Finance AFC Ajax (AMS:AJAX) Is Looking To Continue Growing Its Returns On Capital
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So when we looked at AFC Ajax (AMS:AJAX) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for AFC Ajax:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = €62m ÷ (€608m - €146m) (Based on the trailing twelve months to June 2023).
Thus, AFC Ajax has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.
View our latest analysis for AFC Ajax
Above you can see how the current ROCE for AFC Ajax compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AFC Ajax.
So How Is AFC Ajax's ROCE Trending?
AFC Ajax has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 13% on its capital. And unsurprisingly, like most companies trying to break into the black, AFC Ajax is utilizing 139% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Bottom Line
To the delight of most shareholders, AFC Ajax has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 20% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.
If you want to continue researching AFC Ajax, you might be interested to know about the 1 warning sign that our analysis has discovered.
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.
