What are the first trends to look for to identify a security that could increase in value over the long term? Ideally, a business will display two trends; first growth return on capital employed (ROCE) and, on the other hand, an increase amount capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we have noticed some promising trends at Albany International (NYSE: AIN) So let’s look a little deeper.
Understanding Return on Capital Employed (ROCE)
For those unsure of what ROCE is, it measures the amount of pre-tax profit a business can generate from the capital employed in its business. The formula for this calculation on Albany International is:
Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.13 = $ 172 million ÷ ($ 1.5 billion – $ 167 million) (Based on the last twelve months up to March 2021).
Therefore, Albany International has a ROCE of 13%. In absolute terms, this is a satisfactory performance, but compared to the machinery industry average of 9.6%, it is much better.
Discover our latest analyzes for Albany International
Above you can see how Albany International’s current ROCE compares to its past returns on capital, but you can’t say more about the past. If you like, you can view analyst forecasts covering Albany International here for free.
What the ROCE trend can tell us
Albany International is showing positive trends. Over the past five years, return on capital employed has increased significantly to 13%. The company actually makes more money per dollar of capital used, and it should be noted that the amount of capital has also increased by 50%. This may indicate that there are many opportunities to invest capital in-house and at ever higher rates, a common combination among multiple baggers.
Albany International’s ROCE review
In summary, it’s great to see that Albany International can increase returns by constantly reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought-after multi-baggers. And a remarkable 126% total return over the past five years tells us that investors expect more good things to happen in the future. In light of this, we think it’s worth taking a closer look at this title, because if Albany International can maintain these trends, it could have a bright future.
One more thing to note, we have identified 1 warning sign with Albany International and understand that this should be part of your investment process.
For those who like to invest in solid companies, Check it out free list of companies with strong balance sheets and high returns on equity.
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