Returns Are Gaining Momentum At One Media iP Group (LON:OMIP)

Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in One Media iP Group's (LON:OMIP) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for One Media iP Group, this is the formula:

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

0.064 = UK£1.1m ÷ (UK£18m - UK£1.0m) (Based on the trailing twelve months to October 2021).

So, One Media iP Group has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 16%.

View our latest analysis for One Media iP Group

Above you can see how the current ROCE for One Media iP Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering One Media iP Group here for free.

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 6.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 380% more capital is being employed now too. So we're very much inspired by what we're seeing at One Media iP Group thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 5.9%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that One Media iP Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On One Media iP Group's ROCE

To sum it up, One Media iP Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 128% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if One Media iP Group can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for One Media iP Group (1 makes us a bit uncomfortable) you should be aware of.

While One Media iP Group 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.

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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.