i2S (EPA:ALI2S) Is Looking To Continue Growing Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at i2S (EPA:ALI2S) so let's look a bit deeper.

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. Analysts use this formula to calculate it for i2S:

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

0.05 = €752k ÷ (€22m - €6.5m) (Based on the trailing twelve months to December 2023).

So, i2S has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 7.1%.

See our latest analysis for i2S

Historical performance is a great place to start when researching a stock so above you can see the gauge for i2S' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of i2S.

What Does the ROCE Trend For i2S Tell Us?

We're delighted to see that i2S is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 5.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, i2S is utilizing 95% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On i2S' ROCE

To the delight of most shareholders, i2S has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if i2S can keep these trends up, it could have a bright future ahead.

If you want to continue researching i2S, you might be interested to know about the 5 warning signs that our analysis has discovered.

While i2S isn't earning the highest return, check out this free list of companies that are 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.