Investors Shouldn't Overlook SA Catana Group's (EPA:CATG) Impressive Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in SA Catana Group's (EPA:CATG) 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 SA Catana Group is:

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

0.24 = €30m ÷ (€255m - €128m) (Based on the trailing twelve months to February 2024).

Therefore, SA Catana Group has an ROCE of 24%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

See our latest analysis for SA Catana Group

In the above chart we have measured SA Catana 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 SA Catana Group for free.

What Does the ROCE Trend For SA Catana Group Tell Us?

We like the trends that we're seeing from SA Catana Group. The data shows that returns on capital have increased substantially over the last five years to 24%. The amount of capital employed has increased too, by 308%. So we're very much inspired by what we're seeing at SA Catana Group thanks to its ability to profitably reinvest capital.

Another thing to note, SA Catana Group has a high ratio of current liabilities to total assets of 50%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

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 SA Catana Group has. Since the stock has returned a solid 100% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

SA Catana Group does have some risks, we noticed 3 warning signs (and 2 which are significant) we think you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.