Investors Will Want Elhim-Iskra JSC's (BUL:ELHM) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Elhim-Iskra JSC (BUL:ELHM) and its trend of ROCE, we really liked what we saw.

Understanding 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 Elhim-Iskra JSC, this is the formula:

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

0.038 = лв1.5m ÷ (лв43m - лв2.1m) (Based on the trailing twelve months to June 2023).

So, Elhim-Iskra JSC has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 14%.

View our latest analysis for Elhim-Iskra JSC

Historical performance is a great place to start when researching a stock so above you can see the gauge for Elhim-Iskra JSC's ROCE against it's prior returns. 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.

So How Is Elhim-Iskra JSC's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 3.8%. Basically the business is earning more per dollar of capital invested and in addition to that, 22% more capital is being employed now too. So we're very much inspired by what we're seeing at Elhim-Iskra JSC thanks to its ability to profitably reinvest capital.

Our Take On Elhim-Iskra JSC'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 Elhim-Iskra JSC has. Astute investors may have an opportunity here because the stock has declined 25% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about Elhim-Iskra JSC, we've spotted 4 warning signs, and 2 of them are potentially serious.

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.

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.