Alpha Financial Markets Consulting (LON:AFM) Is Doing The Right Things To Multiply Its Share Price
What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Alpha Financial Markets Consulting (LON:AFM) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Alpha Financial Markets Consulting is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = UK£29m ÷ (UK£233m - UK£67m) (Based on the trailing twelve months to March 2023).
So, Alpha Financial Markets Consulting has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 16% generated by the Professional Services industry.
View our latest analysis for Alpha Financial Markets Consulting
In the above chart we have measured Alpha Financial Markets Consulting's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Alpha Financial Markets Consulting here for free.
So How Is Alpha Financial Markets Consulting's ROCE Trending?
The trends we've noticed at Alpha Financial Markets Consulting are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 92% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
Our Take On Alpha Financial Markets Consulting's ROCE
All in all, it's terrific to see that Alpha Financial Markets Consulting is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 82% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you'd like to know about the risks facing Alpha Financial Markets Consulting, we've discovered 1 warning sign that you should be aware of.
While Alpha Financial Markets Consulting isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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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