We Like These Underlying Return On Capital Trends At Alta Equipment Group (NYSE:ALTG)
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Alta Equipment Group (NYSE:ALTG) looks quite promising in regards to its trends of return on capital.
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. The formula for this calculation on Alta Equipment Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.023 = US$20m ÷ (US$1.4b - US$543m) (Based on the trailing twelve months to September 2025).
So, Alta Equipment Group has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 12%.
View our latest analysis for Alta Equipment Group
In the above chart we have measured Alta Equipment Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Alta Equipment Group .
What Does the ROCE Trend For Alta Equipment Group Tell Us?
Alta Equipment Group has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 2.3% on its capital. In addition to that, Alta Equipment Group is employing 208% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
On a related note, the company's ratio of current liabilities to total assets has decreased to 38%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Alta Equipment Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
In Conclusion...
Long story short, we're delighted to see that Alta Equipment Group's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 34% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
One more thing: We've identified 2 warning signs with Alta Equipment Group (at least 1 which is significant) , and understanding them would certainly be useful.
While Alta Equipment Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.