Returns Are Gaining Momentum At General Commercial & Industrial (ATH:GEBKA)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at General Commercial & Industrial (ATH:GEBKA) so let's look a bit deeper.

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. To calculate this metric for General Commercial & Industrial, this is the formula:

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

0.18 = €5.6m ÷ (€37m - €6.4m) (Based on the trailing twelve months to June 2022).

Therefore, General Commercial & Industrial has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 15% generated by the Trade Distributors industry.

See our latest analysis for General Commercial & Industrial

Historical performance is a great place to start when researching a stock so above you can see the gauge for General Commercial & Industrial's ROCE against it's prior returns. 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.

What The Trend Of ROCE Can Tell Us

General Commercial & Industrial's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 271% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On General Commercial & Industrial's ROCE

To bring it all together, General Commercial & Industrial has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 226% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if General Commercial & Industrial can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing General Commercial & Industrial, we've discovered 4 warning signs that you should be aware of.

While General Commercial & Industrial 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.