We Like These Underlying Return On Capital Trends At Ekter (ATH:EKTER)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. 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?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Ekter:

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

0.10 = €5.3m ÷ (€86m - €33m) (Based on the trailing twelve months to June 2024).

So, Ekter has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 7.3% it's much better.

View our latest analysis for Ekter

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ekter's ROCE against it's prior returns. If you're interested in investigating Ekter's past further, check out this free graph covering Ekter's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Ekter. The data shows that returns on capital have increased substantially over the last five years to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 159% more capital is being employed now too. So we're very much inspired by what we're seeing at Ekter thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 39% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

Our Take On Ekter's ROCE

To sum it up, Ekter has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 236% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

One final note, you should learn about the 3 warning signs we've spotted with Ekter (including 1 which can't be ignored) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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

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.