Stock Analysis

Should You Be Excited About Intertek Group's (LON:ITRK) Returns On Capital?

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LSE:ITRK
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. And in light of that, the trends we're seeing at Intertek Group's (LON:ITRK) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Intertek Group:

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

0.26 = UK£505m ÷ (UK£2.8b - UK£900m) (Based on the trailing twelve months to December 2019).

So, Intertek Group has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

See our latest analysis for Intertek Group

LSE:ITRK Return on Capital Employed June 30th 2020
LSE:ITRK Return on Capital Employed June 30th 2020

Above you can the how the current ROCE for Intertek Group's compares to it's prior returns on capital, but you can only tell so much 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 Intertek Group Tell Us?

Investors would be pleased with what's happening at Intertek Group. The data shows that returns on capital have increased substantially over the last five years to 26%. The amount of capital employed has increased too, by 24%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Intertek Group's ROCE

All in all, it's terrific to see that Intertek Group is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these trends are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Intertek Group does come with some risks, and we've found 1 warning sign that you should be aware of.

Intertek Group is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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