Under The Bonnet, ad pepper media International's (ETR:APM) Returns Look Impressive

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 ad pepper media International's (ETR:APM) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for ad pepper media International:

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

0.23 = €5.1m ÷ (€43m - €22m) (Based on the trailing twelve months to September 2021).

Therefore, ad pepper media International has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Media industry average of 17%.

Check out our latest analysis for ad pepper media International

Above you can see how the current ROCE for ad pepper media International compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

The trends we've noticed at ad pepper media International are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 23%. The amount of capital employed has increased too, by 41%. So we're very much inspired by what we're seeing at ad pepper media International thanks to its ability to profitably reinvest capital.

On a side note, ad pepper media International's current liabilities are still rather high at 50% of total assets. 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.

Our Take On ad pepper media International's ROCE

In summary, it's great to see that ad pepper media International can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

ad pepper media International does have some risks though, and we've spotted 1 warning sign for ad pepper media International that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.