Finding a business that has the potential to grow significantly isn’t easy, but it is possible if we take a look at a few key financial metrics. First, we would like to identify a growth to recover on capital employed (ROCE) and at the same time, a based capital employed. Basically, it means that a business has profitable initiatives that it can keep reinvesting in, which is a hallmark of a dialing machine. With this in mind, the ROCE of QA Group (STO: AQ) looks decent, right now, so let’s see what the yield trend can tell us.
Return on capital employed (ROCE): what is it?
For those who don’t know what ROCE is, it measures the amount of pre-tax profit a business can generate from the capital employed in its business. Analysts use this formula to calculate it for AQ Group:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.13 = kr418m ÷ (kr4.3b – kr1.1b) (Based on the last twelve months up to June 2021).
So, AQ Group has a ROCE of 13%. In absolute terms, this is a fairly normal performance, and it is somewhat close to the electrical industry average of 12%.
Check out our latest analysis for AQ Group
Historical performance is a great place to start when looking for a stock. So you can see above the gauge of AQ Group’s ROCE compared to its past performance. If you are interested in investigating more about AQ Group’s past, check out this free graph of past income, income and cash flow.
What does the AQ group’s ROCE trend tell us?
While current returns on capital are decent, they haven’t changed much. The company has employed 114% more capital over the past five years and returns on that capital have remained stable at 13%. Given that 13% is moderate ROCE, it’s good to see that a company can keep reinvesting at these decent rates of return. Stable returns in this basic stage can be unattractive, but if they can be sustained over the long term, they often offer nice rewards for shareholders.
The bottom line
The main thing to remember is that Groupe AQ has proven its ability to continually reinvest at respectable rates of return. And the stock followed suit, earning 51% to shareholders over the past five years. So while the positive underlying trends can be explained by investors, we still believe this stock is worth looking into.
AQ Group might be attractively priced in other respects, so you might find our free estimate of intrinsic value on our platform quite valuable.
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.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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