Yahoo Finance Returns On Capital At Alcoa (NYSE:AA) Have Stalled
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Alcoa (NYSE:AA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding 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 Alcoa, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = US$1.4b ÷ (US$15b - US$3.0b) (Based on the trailing twelve months to December 2022).
Therefore, Alcoa has an ROCE of 12%. In isolation, that's a pretty standard return but against the Metals and Mining industry average of 17%, it's not as good.
See our latest analysis for Alcoa
In the above chart we have measured Alcoa's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
How Are Returns Trending?
Things have been pretty stable at Alcoa, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Alcoa doesn't end up being a multi-bagger in a few years time.
The Bottom Line On Alcoa's ROCE
We can conclude that in regards to Alcoa's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 1.8% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
Alcoa does have some risks though, and we've spotted 1 warning sign for Alcoa that you might be interested in.
While Alcoa 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.
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