Yahoo Finance Returns On Capital At Spark New Zealand (NZSE:SPK) Have Hit The Brakes
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, the ROCE of Spark New Zealand (NZSE:SPK) looks decent, right now, so lets see what the trend of returns can tell us.
Return On Capital Employed (ROCE): What is it?
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. Analysts use this formula to calculate it for Spark New Zealand:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = NZ$609m ÷ (NZ$4.2b - NZ$800m) (Based on the trailing twelve months to December 2020).
Thus, Spark New Zealand has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 5.4% generated by the Telecom industry.
Check out our latest analysis for Spark New Zealand
In the above chart we have measured Spark New Zealand's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Spark New Zealand here for free.
What Can We Tell From Spark New Zealand's ROCE Trend?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 34% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Spark New Zealand has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Bottom Line On Spark New Zealand's ROCE
In the end, Spark New Zealand has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 75% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
On a final note, we found 3 warning signs for Spark New Zealand (1 is significant) you should be aware of.
While Spark New Zealand isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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