The Trend Of High Returns At Cerillion (LON:CER) Has Us Very Interested

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Cerillion (LON:CER) we really liked what we saw.

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

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. The formula for this calculation on Cerillion is:

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

0.34 = UK£11m ÷ (UK£43m - UK£11m) (Based on the trailing twelve months to September 2022).

Thus, Cerillion has an ROCE of 34%. That's a fantastic return and not only that, it outpaces the average of 8.0% earned by companies in a similar industry.

Check out our latest analysis for Cerillion

Above you can see how the current ROCE for Cerillion 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 Cerillion.

What Does the ROCE Trend For Cerillion Tell Us?

Investors would be pleased with what's happening at Cerillion. The data shows that returns on capital have increased substantially over the last five years to 34%. The amount of capital employed has increased too, by 79%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Cerillion's ROCE

All in all, it's terrific to see that Cerillion 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 patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

Cerillion 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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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.