Investors Met With Slowing Returns on Capital At Elhim-Iskra JSC (BUL:ELHM)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Although, when we looked at Elhim-Iskra JSC (BUL:ELHM), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Elhim-Iskra JSC is:

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

0.013 = лв527k ÷ (лв43m - лв2.4m) (Based on the trailing twelve months to December 2022).

Thus, Elhim-Iskra JSC has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 13%.

Check out our latest analysis for Elhim-Iskra JSC

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Elhim-Iskra JSC has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The returns on capital haven't changed much for Elhim-Iskra JSC in recent years. The company has employed 24% more capital in the last five years, and the returns on that capital have remained stable at 1.3%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Elhim-Iskra JSC's ROCE

As we've seen above, Elhim-Iskra JSC's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One final note, you should learn about the 5 warning signs we've spotted with Elhim-Iskra JSC (including 3 which can't be ignored) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.