Why We Like The Returns At Speedy AD (BUL:SPDY)

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Speedy AD's (BUL:SPDY) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Speedy AD:

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

0.32 = лв54m ÷ (лв284m - лв116m) (Based on the trailing twelve months to June 2024).

Thus, Speedy AD has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Logistics industry average of 11%.

Check out our latest analysis for Speedy AD

Historical performance is a great place to start when researching a stock so above you can see the gauge for Speedy AD's ROCE against it's prior returns. If you're interested in investigating Speedy AD's past further, check out this free graph covering Speedy AD's past earnings, revenue and cash flow.

How Are Returns Trending?

Speedy AD is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 32%. Basically the business is earning more per dollar of capital invested and in addition to that, 65% more capital is being employed now too. So we're very much inspired by what we're seeing at Speedy AD thanks to its ability to profitably reinvest capital.

Another thing to note, Speedy AD has a high ratio of current liabilities to total assets of 41%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

All in all, it's terrific to see that Speedy AD is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 437% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Speedy AD can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Speedy AD that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.