Returns On Capital At Emak (BIT:EM) Have Stalled

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Emak (BIT:EM) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on Emak is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.11 = €51m ÷ (€707m – €244m) (Based on the trailing twelve months to June 2022).

Therefore, Emak has an ROCE of 11%. In absolute terms, that’s a pretty normal return, and it’s somewhat close to the Consumer Durables industry average of 12%.

View our latest analysis for Emak

In the above chart we have measured Emak’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 Emak here for free.

What Does the ROCE Trend For Emak Tell Us?

While the current returns on capital are decent, they haven’t changed much. The company has employed 66% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it’s good to see a business can continue to reinvest at these decent rates of return. 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.

What We Can Learn From Emak’s ROCE

The main thing to remember is that Emak has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock hasn’t provided much growth to shareholders in the way of total returns. For that reason, savvy investors might want to look further into this company in case it’s a prime investment.

On a final note, we found 2 warning signs for Emak (1 is significant) 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.