U.S. markets closed
  • S&P 500

    4,188.43
    -44.17 (-1.04%)
     
  • Dow 30

    34,742.82
    -34.94 (-0.10%)
     
  • Nasdaq

    13,401.86
    -350.38 (-2.55%)
     
  • Russell 2000

    2,212.70
    -58.93 (-2.59%)
     
  • Crude Oil

    64.86
    -0.06 (-0.09%)
     
  • Gold

    1,836.50
    -1.10 (-0.06%)
     
  • Silver

    27.37
    -0.11 (-0.40%)
     
  • EUR/USD

    1.2140
    +0.0006 (+0.05%)
     
  • 10-Yr Bond

    1.6020
    +0.0250 (+1.59%)
     
  • GBP/USD

    1.4125
    +0.0004 (+0.03%)
     
  • USD/JPY

    108.8230
    -0.0180 (-0.02%)
     
  • BTC-USD

    55,845.54
    -2,355.65 (-4.05%)
     
  • CMC Crypto 200

    1,484.90
    -76.40 (-4.89%)
     
  • FTSE 100

    7,123.68
    -6.03 (-0.08%)
     
  • Nikkei 225

    29,518.34
    +160.52 (+0.55%)
     

Our Take On The Returns On Capital At Kaiser Aluminum (NASDAQ:KALU)

  • Oops!
    Something went wrong.
    Please try again later.
Simply Wall St
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Kaiser Aluminum (NASDAQ:KALU), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Kaiser Aluminum, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.078 = US$133m ÷ (US$1.8b - US$150m) (Based on the trailing twelve months to June 2020).

Therefore, Kaiser Aluminum has an ROCE of 7.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.1%.

See our latest analysis for Kaiser Aluminum

roce
roce

In the above chart we have measured Kaiser Aluminum'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 Kaiser Aluminum here for free.

So How Is Kaiser Aluminum's ROCE Trending?

In terms of Kaiser Aluminum's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.8% from 12% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On Kaiser Aluminum's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Kaiser Aluminum have fallen, meanwhile the business is employing more capital than it was five years ago. Long term shareholders who've owned the stock over the last five years have experienced a 23% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing, we've spotted 5 warning signs facing Kaiser Aluminum that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.