Peoplein (ASX:PPE) Shareholders Will Want The ROCE Trajectory To Continue

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Speaking of which, we noticed some great changes in Peoplein's (ASX:PPE) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Peoplein:

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

0.17 = AU$28m ÷ (AU$239m - AU$81m) (Based on the trailing twelve months to December 2021).

So, Peoplein has an ROCE of 17%. That's a pretty standard return and it's in line with the industry average of 17%.

See our latest analysis for Peoplein

Above you can see how the current ROCE for Peoplein 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 Peoplein here for free.

So How Is Peoplein's ROCE Trending?

The trends we've noticed at Peoplein are quite reassuring. The data shows that returns on capital have increased substantially over the last four years to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 333%. 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 34%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Peoplein has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

All in all, it's terrific to see that Peoplein is reaping the rewards from prior investments and is growing its capital base. And with a respectable 64% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 4 warning signs for Peoplein you'll probably want to know about.

While Peoplein isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.