We Like These Underlying Return On Capital Trends At General Commercial & Industrial (ATH:GEBKA)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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. 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)

0.15 = €4.9m ÷ (€39m - €6.9m) (Based on the trailing twelve months to December 2023).

Therefore, General Commercial & Industrial has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 12% 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of General Commercial & Industrial.

What Does the ROCE Trend For General Commercial & Industrial Tell Us?

General Commercial & Industrial's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 175% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

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 112% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

General Commercial & Industrial does have some risks though, and we've spotted 3 warning signs for General Commercial & Industrial that you might be interested in.

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.

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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.

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