Yahoo Finance Acadian Timber (TSE:ADN) Hasn't Managed To Accelerate Its Returns
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Acadian Timber (TSE:ADN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding 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. Analysts use this formula to calculate it for Acadian Timber:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = CA$26m ÷ (CA$583m - CA$57m) (Based on the trailing twelve months to June 2024).
Therefore, Acadian Timber has an ROCE of 4.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.0%.
Check out our latest analysis for Acadian Timber
Above you can see how the current ROCE for Acadian Timber compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Acadian Timber .
So How Is Acadian Timber's ROCE Trending?
There hasn't been much to report for Acadian Timber's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Acadian Timber to be a multi-bagger going forward. That being the case, it makes sense that Acadian Timber has been paying out 130% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.
The Bottom Line
In a nutshell, Acadian Timber has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 56% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Acadian Timber (of which 1 can't be ignored!) that you should know about.
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.
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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.
