Slowing yield rates at Avista (NYSE:AVA) leave little room for enthusiasm

Finding a business that has the potential to grow significantly isn’t easy, but it is possible if you look at a few key financial indicators. A common approach is to try to find a company with Back on capital employed (ROCE) which increases, in conjunction with growth Rising of capital employed. This essentially means that a company has profitable initiatives that it can continue to reinvest in, which is a characteristic of a capitalization machine. In light of this, when we examined A sight (NYSE:AVA) and its ROCE trend, we weren’t exactly thrilled.

Return on capital employed (ROCE): what is it?

To clarify if you’re not sure, ROCE is a metric that measures the amount of pre-tax income (as a percentage) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Avista:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.04 = $282 million ÷ ($7.6 billion – $580 million) (Based on the last twelve months to March 2024).

So, Avista has a ROCE of 4.0%. Ultimately, this is a low return and underperforms the Integrated Utilities sector average of 5.0%.

Check out our latest analysis for Avista

In the chart above, we’ve measured Avista’s past ROCE against its past performance, but the future is arguably more important. If you’re interested, you can check out analyst forecasts in our free analyst report for Avista.

What can we say about Avista’s ROCE trend?

As for Avista’s historical ROCE trend, it doesn’t really demand attention. The company has employed 33% more capital over the last five years and the return on that capital has remained stable at 4.0%. This low ROCE doesn’t inspire confidence at the moment, and with the increase in capital employed, it’s clear that the company is not deploying funds in high-return investments.

Our opinion on Avista’s ROCE

As we saw above, Avista’s return on equity hasn’t been growing, but the company is reinvesting in the business. Additionally, the stock’s total return to shareholders over the past five years has been flat, which isn’t too surprising. In any case, the stock doesn’t exhibit the multi-bagger characteristics discussed above, so if that’s what you’re looking for, we think you’ll have better luck elsewhere.

Since virtually every business faces risks, it’s worth knowing about them, and we’ve spotted 4 warning signs for Avista (1 of which is a bit concerning!) that you should know about.

For those who like to invest in solid businesses, Look at this free list of companies with strong balance sheets and high return on equity.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative elements. Simply Wall St has no position in any of the stocks mentioned.

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