The Return Trends At Ekter (ATH:EKTER) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Ekter (ATH:EKTER) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Ekter is:

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

0.023 = €521k ÷ (€29m - €6.1m) (Based on the trailing twelve months to June 2022).

Therefore, Ekter has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 8.3%.

Check out our latest analysis for Ekter

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Ekter, check out these free graphs here.

What Does the ROCE Trend For Ekter Tell Us?

Ekter has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 2.3% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

The Key Takeaway

To bring it all together, Ekter has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 91% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Ekter can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 4 warning signs with Ekter and understanding these should be part of your investment process.

While Ekter 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.