Will The ROCE Trend At Smartphoto Group (EBR:SMAR) Continue?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Smartphoto Group (EBR:SMAR) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Smartphoto Group, this is the formula:

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

0.12 = €5.1m ÷ (€52m - €9.1m) (Based on the trailing twelve months to June 2020).

Therefore, Smartphoto Group has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Commercial Services industry average of 10%.

View our latest analysis for Smartphoto Group

In the above chart we have measured Smartphoto 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 Smartphoto Group.

How Are Returns Trending?

Investors would be pleased with what's happening at Smartphoto Group. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 90% more capital is being employed now too. So we're very much inspired by what we're seeing at Smartphoto Group thanks to its ability to profitably reinvest capital.

Our Take On Smartphoto Group's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Smartphoto Group has. Since the stock has returned a staggering 427% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

If you'd like to know about the risks facing Smartphoto Group, we've discovered 1 warning sign that you should be aware of.

While Smartphoto Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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