Investors looking to identify stocks with the potential to multiply in value over the long term should pay attention to growing return on capital employed (ROCE) and an expansion in the company’s capital employed. Ainsworth Game Technology (ASX:AGI) has shown significant improvements in its ROCE, indicating that it is a business reinvesting profits at increasing rates of return.
Analysts use the formula Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities) to calculate ROCE, with Ainsworth Game Technology currently at 7.9%, slightly below the industry average of 9.6%. However, the company has seen a 247% increase in ROCE over the last five years, despite keeping capital employed flat.
While the company’s improved efficiencies are a positive sign, investors may still be cautious as the stock has only returned 5.7% to shareholders over the same period. Despite this, the underlying trends suggest potential for further growth and investors may want to consider conducting further research on Ainsworth Game Technology.
It is important to note that there is one warning sign identified with the company, which investors should take into consideration. This article by Simply Wall St provides general commentary based on historical data and analyst forecasts and is not intended as financial advice. Investors are encouraged to conduct their own research and consider their own financial situation before making any investment decisions.
Source
Photo credit finance.yahoo.com