Yahoo Finance AlzChem Group's (ETR:ACT) Returns Have Hit A Wall
If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over AlzChem Group's (ETR:ACT) trend of ROCE, we liked what we saw.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for AlzChem Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = €54m ÷ (€425m - €83m) (Based on the trailing twelve months to December 2023).
Thus, AlzChem Group has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 7.3% it's much better.
Check out our latest analysis for AlzChem Group
Above you can see how the current ROCE for AlzChem Group 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 analyst report for AlzChem Group .
What Can We Tell From AlzChem Group's ROCE Trend?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 47% more capital in the last five years, and the returns on that capital have remained stable at 16%. 16% is a pretty standard return, and it provides some comfort knowing that AlzChem Group has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On AlzChem Group's ROCE
In the end, AlzChem Group has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 142% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
If you'd like to know about the risks facing AlzChem Group, we've discovered 1 warning sign that you should be aware of.
While AlzChem Group 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.
