Intega Group (ASX:ITG) Shareholders Will Want The ROCE Trajectory To Continue

By
Simply Wall St
Published
May 09, 2021
ASX:ITG
Source: Shutterstock

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Intega Group (ASX:ITG) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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 Intega Group is:

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

0.019 = AU$4.5m ÷ (AU$314m - AU$81m) (Based on the trailing twelve months to June 2020).

So, Intega Group has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Construction industry average of 12%.

View our latest analysis for Intega Group

roce
ASX:ITG Return on Capital Employed May 10th 2021

In the above chart we have measured Intega Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Intega Group.

What Can We Tell From Intega Group's ROCE Trend?

We're delighted to see that Intega Group is reaping rewards from its investments and is now generating some pre-tax profits. About three years ago the company was generating losses but things have turned around because it's now earning 1.9% on its capital. In addition to that, Intega Group is employing 211% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 26%, 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.

The Key Takeaway

To the delight of most shareholders, Intega Group has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 65% return over the last year. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Intega Group does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

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.

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