Why The 22% Return On Capital At Anglo-Eastern Plantations (LON:AEP) Should Have Your Attention
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, the ROCE of Anglo-Eastern Plantations (LON:AEP) looks great, so lets see what the trend can tell us.
Understanding 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. Analysts use this formula to calculate it for Anglo-Eastern Plantations:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.22 = US$128m ÷ (US$630m - US$46m) (Based on the trailing twelve months to December 2022).
Thus, Anglo-Eastern Plantations has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Food industry average of 8.7%.
Check out our latest analysis for Anglo-Eastern Plantations
Historical performance is a great place to start when researching a stock so above you can see the gauge for Anglo-Eastern Plantations' ROCE against it's prior returns. If you'd like to look at how Anglo-Eastern Plantations has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
Anglo-Eastern Plantations' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 76% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line
In summary, we're delighted to see that Anglo-Eastern Plantations has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 17% to shareholders. So with that in mind, we think the stock deserves further research.
If you'd like to know about the risks facing Anglo-Eastern Plantations, we've discovered 1 warning sign that you should be aware of.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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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