Yahoo Finance Returns Are Gaining Momentum At Quickstep Holdings (ASX:QHL)
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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Quickstep Holdings (ASX:QHL) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
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. To calculate this metric for Quickstep Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.035 = AU$1.8m ÷ (AU$80m - AU$28m) (Based on the trailing twelve months to June 2022).
Thus, Quickstep Holdings has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Aerospace & Defense industry average of 7.9%.
Check out our latest analysis for Quickstep Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Quickstep Holdings' ROCE against it's prior returns. If you'd like to look at how Quickstep Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
We're delighted to see that Quickstep Holdings is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 3.5% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Quickstep Holdings is utilizing 201% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
One more thing to note, Quickstep Holdings has decreased current liabilities to 35% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Quickstep Holdings has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
The Key Takeaway
In summary, it's great to see that Quickstep Holdings has managed to break into profitability and is continuing to reinvest in its business. Given the stock has declined 33% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
If you'd like to know about the risks facing Quickstep Holdings, we've discovered 1 warning sign that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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