General Commercial & Industrial (ATH:GEBKA) Might Have The Makings Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. 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 General Commercial & Industrial's (ATH:GEBKA) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 General Commercial & Industrial:

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

0.18 = €5.6m ÷ (€40m - €8.5m) (Based on the trailing twelve months to June 2023).

Therefore, General Commercial & Industrial has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 14% generated by the Trade Distributors industry.

See our latest analysis for General Commercial & Industrial

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'd like to look at how General Commercial & Industrial has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

General Commercial & Industrial is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The amount of capital employed has increased too, by 20%. So we're very much inspired by what we're seeing at General Commercial & Industrial thanks to its ability to profitably reinvest capital.

The Bottom Line On General Commercial & Industrial's ROCE

To sum it up, General Commercial & Industrial has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 198% 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 more thing to note, we've identified 2 warning signs with General Commercial & Industrial and understanding these should be part of your investment process.

While General Commercial & Industrial 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.