What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, BIO-UV Group (EPA:ALTUV) looks quite promising in regards to its trends of return on capital.
Understanding 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. The formula for this calculation on BIO-UV Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.045 = €1.9m ÷ (€51m - €8.7m) (Based on the trailing twelve months to June 2021).
So, BIO-UV Group has an ROCE of 4.5%. On its own, that's a low figure but it's around the 4.4% average generated by the Machinery industry.
In the above chart we have measured BIO-UV Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering BIO-UV Group here for free.
What Does the ROCE Trend For BIO-UV Group Tell Us?
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last four years, returns on capital employed have risen substantially to 4.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 196% more capital is being employed now too. So we're very much inspired by what we're seeing at BIO-UV Group thanks to its ability to profitably reinvest capital.
To sum it up, BIO-UV Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 21% to its stockholders over the last three years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
If you want to continue researching BIO-UV Group, you might be interested to know about the 2 warning signs that our analysis has discovered.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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.