Yahoo Finance Investors Will Want SILK Laser Australia's (ASX:SLA) Growth In ROCE To Persist
There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, SILK Laser Australia (ASX:SLA) looks quite promising in regards to its trends of return on capital.
What is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for SILK Laser Australia:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = AU$10.0m ÷ (AU$124m - AU$28m) (Based on the trailing twelve months to June 2021).
So, SILK Laser Australia has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 10%.
View our latest analysis for SILK Laser Australia
In the above chart we have measured SILK Laser Australia's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for SILK Laser Australia.
What The Trend Of ROCE Can Tell Us
SILK Laser Australia has recently broken into profitability so their prior investments seem to be paying off. About three years ago the company was generating losses but things have turned around because it's now earning 10% on its capital. And unsurprisingly, like most companies trying to break into the black, SILK Laser Australia is utilizing 233% more capital than it was three years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Bottom Line
To the delight of most shareholders, SILK Laser Australia has now broken into profitability. And since the stock has fallen 14% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
One more thing, we've spotted 2 warning signs facing SILK Laser Australia that you might find interesting.
While SILK Laser Australia 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.
