Specialty metals producer Allegheny Technologies (NYSE: ATI) has plenty to be proud of. Book value per share has increased tenfold since the dark days of 2003, and just as with competitor Titanium Metals (NYSE: TIE), ATI now has more cash than debt.

Still, Wednesday's earnings release, packed with impressive-sounding figures, was slightly promotional for my taste. There's a lot of useful information there, but the less favorable year-over-year comparisons require unsurfacing.

Yes, sales and profits hit records. Operating margins also improved, though only in one of ATI's three segments. Plunging scrap titanium prices weighed on the profitability of the high-performance metals segment, whose slight margin deterioration was not addressed in the text of the release. The segment contributed 77% of operating profit in the fourth quarter, so it's a critical piece of the business.

Allegheny obviously has no control over volatile commodity prices. That's why there are several metrics that are arguably more useful to watch than operating margins. For one, there's working capital as a percentage of sales. This shows how good the organization is at freeing up cash in the normal course of business. Using the firm's calculations, this liquidity measure deteriorated slightly in 2007.

Return on capital employed is another important figure to keep an eye on. This measure captures not only profits ("return"), but also management's capital allocation decisions ("capital employed"). It's one thing to juice sales and earnings growth by overspending, and quite another to grow by reinvesting in a business only up to the point that intrinsic value is maximized.

While recently signed long-term agreements with Boeing (NYSE: BA) and General Electric's (NYSE: GE) aviation division certainly help to enhance visibility, ATI runs some risk of overspending at a cyclical peak. Now, just like GE, Allegheny is a beneficiary of the global infrastructure boom. GE's backlog suggests that the trend isn't going away anytime soon, so maybe ATI's 88% hike in capex is no cause for alarm. It's just hard not to view the metal maker's slippage in return on capital employed as a warning sign.

Allegheny Technologies is rated five stars in Motley Fool CAPS. Agree? Disagree? Weigh in here.

Further Foolishness:

  • ATI has roused Foolish interest for years now.
  • The company also recently announced a sizeable buyback.
  • Boeing's delays are anything but dreamy.

Fool contributor Toby Shute doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.