Innelec Multimédia (EPA:ALINN) Might Have The Makings Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in Innelec Multimédia's (EPA:ALINN) returns on capital, so let's have a look.

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 Innelec Multimédia:

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

0.024 = €574k ÷ (€73m - €49m) (Based on the trailing twelve months to September 2020).

Therefore, Innelec Multimédia has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.7%.

View our latest analysis for Innelec Multimédia

Above you can see how the current ROCE for Innelec Multimédia compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Innelec Multimédia.

So How Is Innelec Multimédia's ROCE Trending?

Shareholders will be relieved that Innelec Multimédia has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 2.4%, which is always encouraging. While returns have increased, the amount of capital employed by Innelec Multimédia has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Another thing to note, Innelec Multimédia has a high ratio of current liabilities to total assets of 67%. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Innelec Multimédia's ROCE

To bring it all together, Innelec Multimédia has done well to increase the returns it's generating from its capital employed. And with a respectable 76% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Innelec Multimédia can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Innelec Multimédia (of which 3 make us uncomfortable!) that you should know about.

While Innelec Multimédia may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

If you’re looking to trade Innelec Multimédia, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.