If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So on that note, InTiCa Systems (ETR:IS7) looks quite promising in regards to its trends of return on capital.
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 InTiCa Systems, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.056 = €2.0m ÷ (€53m - €17m) (Based on the trailing twelve months to December 2020).
So, InTiCa Systems has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 9.0%.
In the above chart we have measured InTiCa Systems' 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 InTiCa Systems.
What Does the ROCE Trend For InTiCa Systems Tell Us?
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 41% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
What We Can Learn From InTiCa Systems' ROCE
To sum it up, InTiCa Systems has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 186% 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 InTiCa Systems can keep these trends up, it could have a bright future ahead.
If you want to continue researching InTiCa Systems, you might be interested to know about the 2 warning signs that our analysis has discovered.
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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