Yahoo Finance Returns On Capital At Eumundi Group (ASX:EBG) Have Hit The Brakes
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Eumundi Group (ASX:EBG) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Eumundi Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.054 = AU$5.5m ÷ (AU$106m - AU$4.9m) (Based on the trailing twelve months to June 2023).
Thus, Eumundi Group has an ROCE of 5.4%. On its own, that's a low figure but it's around the 6.2% average generated by the Hospitality industry.
Check out our latest analysis for Eumundi Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for Eumundi Group's ROCE against it's prior returns. If you're interested in investigating Eumundi Group's past further, check out this free graph of past earnings, revenue and cash flow.
What Can We Tell From Eumundi Group's ROCE Trend?
The returns on capital haven't changed much for Eumundi Group in recent years. The company has consistently earned 5.4% for the last five years, and the capital employed within the business has risen 58% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
The Bottom Line
As we've seen above, Eumundi Group's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 52% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 7 warning signs for Eumundi Group (of which 3 shouldn't be ignored!) that you should know about.
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.
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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.
