IBU-tec advanced materials' (ETR:IBU) Returns On Capital Not Reflecting Well On The Business

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating IBU-tec advanced materials (ETR:IBU), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on IBU-tec advanced materials is:

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

0.0018 = €120k ÷ (€77m - €9.5m) (Based on the trailing twelve months to December 2021).

Therefore, IBU-tec advanced materials has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 11%.

View our latest analysis for IBU-tec advanced materials

In the above chart we have measured IBU-tec advanced materials' 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 IBU-tec advanced materials.

How Are Returns Trending?

On the surface, the trend of ROCE at IBU-tec advanced materials doesn't inspire confidence. Around five years ago the returns on capital were 20%, but since then they've fallen to 0.2%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On IBU-tec advanced materials' ROCE

While returns have fallen for IBU-tec advanced materials in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 64% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

IBU-tec advanced materials does have some risks though, and we've spotted 1 warning sign for IBU-tec advanced materials that you might be interested in.

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.