There's Been No Shortage Of Growth Recently For General de Alquiler de Maquinaria's (BME:GAM) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in General de Alquiler de Maquinaria's (BME:GAM) returns on capital, so let's have a look.

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

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 General de Alquiler de Maquinaria:

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

0.047 = €17m ÷ (€551m - €191m) (Based on the trailing twelve months to June 2025).

So, General de Alquiler de Maquinaria has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 11%.

See our latest analysis for General de Alquiler de Maquinaria

Above you can see how the current ROCE for General de Alquiler de Maquinaria compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering General de Alquiler de Maquinaria for free.

So How Is General de Alquiler de Maquinaria's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 4.7%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 250%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 35%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what General de Alquiler de Maquinaria has. Considering the stock has delivered 38% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 3 warning signs we've spotted with General de Alquiler de Maquinaria (including 1 which is significant) .

While General de Alquiler de Maquinaria isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.