Why We Like The Returns At Fertiglobe (ADX:FERTIGLB)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Fertiglobe (ADX:FERTIGLB) we really liked what we saw.

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 Fertiglobe, this is the formula:

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

0.38 = US$1.9b ÷ (US$5.7b - US$750m) (Based on the trailing twelve months to March 2023).

Therefore, Fertiglobe has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 9.1%.

Check out our latest analysis for Fertiglobe

Above you can see how the current ROCE for Fertiglobe compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Fertiglobe here for free.

SWOT Analysis for Fertiglobe

What Can We Tell From Fertiglobe's ROCE Trend?

Fertiglobe is displaying some positive trends. Over the last four years, returns on capital employed have risen substantially to 38%. The amount of capital employed has increased too, by 156%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 13%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On Fertiglobe's ROCE

To sum it up, Fertiglobe has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 35% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One final note, you should learn about the 2 warning signs we've spotted with Fertiglobe (including 1 which shouldn't be ignored) .

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.