Returns Are Gaining Momentum At SA Catana Group (EPA:CATG)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, SA Catana Group (EPA:CATG) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for SA Catana Group, this is the formula:

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

0.11 = €6.9m ÷ (€99m - €34m) (Based on the trailing twelve months to August 2020).

Thus, SA Catana Group has an ROCE of 11%. In isolation, that's a pretty standard return but against the Leisure industry average of 16%, it's not as good.

See our latest analysis for SA Catana Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of SA Catana Group, check out these free graphs here.

How Are Returns Trending?

We're delighted to see that SA Catana Group is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 11% on its capital. And unsurprisingly, like most companies trying to break into the black, SA Catana Group is utilizing 189% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

In summary, it's great to see that SA Catana Group has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 643% 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 SA Catana Group can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing SA Catana Group, we've discovered 2 warning signs that you should be aware of.

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.

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