SA Onlineformapro's (EPA:MLONL) Returns On Capital Are Heading Higher

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in SA Onlineformapro's (EPA:MLONL) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for SA Onlineformapro:

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

0.14 = €1.8m ÷ (€19m - €5.2m) (Based on the trailing twelve months to June 2023).

Thus, SA Onlineformapro has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Services industry average of 13%.

Check out our latest analysis for SA Onlineformapro

Historical performance is a great place to start when researching a stock so above you can see the gauge for SA Onlineformapro's ROCE against it's prior returns. If you'd like to look at how SA Onlineformapro has performed in the past in other metrics, you can view this free graph of SA Onlineformapro's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from SA Onlineformapro. The data shows that returns on capital have increased substantially over the last four years to 14%. 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 306%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

In summary, it's great to see that SA Onlineformapro 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. Investors may not be impressed by the favorable underlying trends yet because over the last three years the stock has only returned 9.9% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

SA Onlineformapro does have some risks though, and we've spotted 4 warning signs for SA Onlineformapro that you might be interested in.

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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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.