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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating United Company RUSAL International (HKG:486), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on United Company RUSAL International is:

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

0.012 = US$217m ÷ (US$21b - US$3.7b) (Based on the trailing twelve months to December 2023).

So, United Company RUSAL International has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 11%.

Above you can see how the current ROCE for United Company RUSAL International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for United Company RUSAL International .

How Are Returns Trending?

On the surface, the trend of ROCE at United Company RUSAL International doesn't inspire confidence. Over the last five years, returns on capital have decreased to 1.2% from 12% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

What We Can Learn From United Company RUSAL International's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for United Company RUSAL International have fallen, meanwhile the business is employing more capital than it was five years ago. It should come as no surprise then that the stock has fallen 23% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for United Company RUSAL International (of which 1 makes us a bit uncomfortable!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.