What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Alaska Communications Systems Group's (NASDAQ:ALSK) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Alaska Communications Systems Group is:

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

0.052 = US$27m ÷ (US$576m - US$67m) (Based on the trailing twelve months to June 2020).

Therefore, Alaska Communications Systems Group has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Telecom industry average of 6.8%.

View our latest analysis for Alaska Communications Systems Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Alaska Communications Systems Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Alaska Communications Systems Group, check out these free graphs here.

What Can We Tell From Alaska Communications Systems Group's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 5.2%. The amount of capital employed has increased too, by 26%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Alaska Communications Systems Group's ROCE

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 Alaska Communications Systems Group has. Since the stock has only returned 19% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Alaska Communications Systems Group does have some risks though, and we've spotted 1 warning sign for Alaska Communications Systems Group that you might be interested in.

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.

This article by Simply Wall St is general in nature. 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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