We Like These Underlying Return On Capital Trends At InterMail (CPH:IMAIL)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in InterMail's (CPH:IMAIL) returns on capital, so let's have a look.

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

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 InterMail:

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

0.086 = kr.8.9m ÷ (kr.147m - kr.43m) (Based on the trailing twelve months to September 2021).

Thus, InterMail has an ROCE of 8.6%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 9.6%.

Check out 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'd like to look at how InterMail has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're pretty happy with how the ROCE has been trending at InterMail. The data shows that returns on capital have increased by 681% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, InterMail appears to been achieving more with less, since the business is using 49% less capital to run its operation. InterMail may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line

In summary, it's great to see that InterMail has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has only returned 4.3% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One more thing to note, we've identified 2 warning signs with InterMail and understanding these should be part of your investment process.

While InterMail isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.