Genuit Group (LON:GEN) Hasn't Managed To Accelerate Its Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Genuit Group (LON:GEN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Genuit Group, this is the formula:

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

0.099 = UK£84m ÷ (UK£979m - UK£131m) (Based on the trailing twelve months to December 2023).

So, Genuit Group has an ROCE of 9.9%. Even though it's in line with the industry average of 9.9%, it's still a low return by itself.

Check out our latest analysis for Genuit Group

In the above chart we have measured Genuit Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Genuit Group .

How Are Returns Trending?

The returns on capital haven't changed much for Genuit Group in recent years. The company has employed 53% more capital in the last five years, and the returns on that capital have remained stable at 9.9%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Genuit Group's ROCE

As we've seen above, Genuit Group's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 46% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Genuit Group does have some risks though, and we've spotted 2 warning signs for Genuit Group that you might be interested in.

While Genuit Group 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.

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