Should We Be Excited About The Trends Of Returns At General Commercial & Industrial (ATH:GEBKA)?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. In light of that, when we looked at General Commercial & Industrial (ATH:GEBKA) and its ROCE trend, we weren't exactly thrilled.

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 General Commercial & Industrial:

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

0.05 = €1.4m ÷ (€32m - €5.1m) (Based on the trailing twelve months to June 2020).

Therefore, General Commercial & Industrial has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 11%.

Check out 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.

So How Is General Commercial & Industrial's ROCE Trending?

There hasn't been much to report for General Commercial & Industrial's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if General Commercial & Industrial doesn't end up being a multi-bagger in a few years time.

In Conclusion...

In a nutshell, General Commercial & Industrial has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 312% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we've found 2 warning signs for General Commercial & Industrial that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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