We Think Reworld Media Société Anonyme (EPA:ALREW) Might Have The DNA Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. 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 Reworld Media Société Anonyme's (EPA:ALREW) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Reworld Media Société Anonyme is:

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

0.33 = €64m ÷ (€652m - €462m) (Based on the trailing twelve months to December 2022).

So, Reworld Media Société Anonyme has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Media industry average of 12%.

View our latest analysis for Reworld Media Société Anonyme

Above you can see how the current ROCE for Reworld Media Société Anonyme compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Reworld Media Société Anonyme Tell Us?

Investors would be pleased with what's happening at Reworld Media Société Anonyme. Over the last five years, returns on capital employed have risen substantially to 33%. The amount of capital employed has increased too, by 317%. So we're very much inspired by what we're seeing at Reworld Media Société Anonyme thanks to its ability to profitably reinvest capital.

On a separate but related note, it's important to know that Reworld Media Société Anonyme has a current liabilities to total assets ratio of 71%, which we'd consider pretty high. 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.

What We Can Learn From Reworld Media Société Anonyme's ROCE

In summary, it's great to see that Reworld Media Société Anonyme 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. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 1 warning sign with Reworld Media Société Anonyme and understanding it should be part of your investment process.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.