Investors Will Want SCR-Sibelco's (EBR:094426466) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 SCR-Sibelco (EBR:094426466) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for SCR-Sibelco:

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

0.15 = €303m ÷ (€2.8b - €746m) (Based on the trailing twelve months to June 2024).

Thus, SCR-Sibelco has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.5% generated by the Metals and Mining industry.

See our latest analysis for SCR-Sibelco

Historical performance is a great place to start when researching a stock so above you can see the gauge for SCR-Sibelco's ROCE against it's prior returns. If you'd like to look at how SCR-Sibelco has performed in the past in other metrics, you can view this free graph of SCR-Sibelco's past earnings, revenue and cash flow.

So How Is SCR-Sibelco's ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at SCR-Sibelco. The data shows that returns on capital have increased by 247% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 48% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line

In summary, it's great to see that SCR-Sibelco has been able to turn things around and earn higher returns on lower amounts of capital. Given the stock has declined 15% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing SCR-Sibelco, we've discovered 2 warning signs that you should be aware of.

While SCR-Sibelco 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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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.