Here's What To Make Of InterMail's (CPH:IMAIL) Decelerating Rates Of Return

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at InterMail (CPH:IMAIL), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for InterMail, this is the formula:

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

0.024 = kr.2.7m ÷ (kr.150m - kr.41m) (Based on the trailing twelve months to March 2021).

So, InterMail has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 10%.

View our latest analysis for InterMail

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

So How Is InterMail's ROCE Trending?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 51% in that same period. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. In addition to that, since the ROCE doesn't scream "quality" at 2.4%, it's hard to get excited about these developments.

The Bottom Line

It's a shame to see that InterMail is effectively shrinking in terms of its capital base. And investors appear hesitant that the trends will pick up because the stock has fallen 38% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

InterMail does have some risks though, and we've spotted 2 warning signs for InterMail 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.
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