Is There More Growth In Store For Freelance.com's (EPA:ALFRE) Returns On Capital?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Freelance.com's (EPA:ALFRE) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Freelance.com is:

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

0.11 = €6.4m ÷ (€181m - €124m) (Based on the trailing twelve months to June 2020).

Thus, Freelance.com has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Professional Services industry.

Check out our latest analysis for Freelance.com

In the above chart we have measured Freelance.com'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 Freelance.com here for free.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Freelance.com are quite reassuring. Over the last four years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 4,049%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Freelance.com has decreased current liabilities to 68% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. 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. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line

In summary, it's great to see that Freelance.com can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 268% 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 Freelance.com can keep these trends up, it could have a bright future ahead.

If you want to continue researching Freelance.com, 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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