Admicom Oyj (HEL:ADMCM) Is Very Good At Capital Allocation

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Admicom Oyj (HEL:ADMCM) we really liked what we saw.

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 Admicom Oyj:

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

0.42 = €9.5m ÷ (€26m - €3.8m) (Based on the trailing twelve months to December 2020).

Thus, Admicom Oyj has an ROCE of 42%. In absolute terms that's a great return and it's even better than the Software industry average of 13%.

See our latest analysis for Admicom Oyj

Above you can see how the current ROCE for Admicom Oyj 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.

How Are Returns Trending?

The trends we've noticed at Admicom Oyj are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 42%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 893%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 15%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Admicom Oyj's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Admicom Oyj has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 59% return over the last year. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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