I am writing today to help inform people who are new to the stock market and want to begin learning the link between Ormester Vagyonvédelmi Nyrt (BUSE:ORMESTER)’s return fundamentals and stock market performance.
Ormester Vagyonvédelmi Nyrt stock represents an ownership share in the company. This share represents a portion of capital used by the company to operate the business, and it is important the company is able to use the capital base efficiently to create adequate cash flows for you as an investor. Your return is tied to ORMESTER’s ability to do this because the amount earned is used to invest in opportunities to grow the business or payout dividends, which are the two sources of return on investment. To understand Ormester Vagyonvédelmi Nyrt’s capital returns we will look at a useful metric called return on capital employed. This will tell us if the company is growing your capital and placing you in good stead to sell your shares at a profit.Check out our latest analysis for Ormester Vagyonvédelmi Nyrt
What is Return on Capital Employed (ROCE)?
You only have a finite amount of capital to invest, so there are only so many companies that you can add to your portfolio. Accordingly, before you invest you need to assess the capital returns that the company has produced with reference to a certain benchmark to ensure that you are confident in the business’ ability to grow your capital at a level that grants an investment over other companies. A good metric to use is return on capital employed (ROCE), which helps us gauge how much income can be created from the funds needed to operate the business. This metric will tell us if Ormester Vagyonvédelmi Nyrt is good at growing investor capital. Take a look at the formula box beneath:
ROCE Calculation for ORMESTER
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = FT13.10M ÷ (FT445.48M – FT219.72M) = 5.80%
ORMESTER’s 5.80% ROCE means that for every HUF100 you invest, the company creates HUF5.8. This shows Ormester Vagyonvédelmi Nyrt provides a dull capital return that is below the 15% ROCE that is typically considered to be a strong benchmark. Nevertheless, if ORMESTER is clever with their reinvestments or dividend payments, investors can still grow their capital but may fall behind other more attractive opportunities in the market.
What is causing this?
The underperforming ROCE is not ideal for Ormester Vagyonvédelmi Nyrt investors if the company is unable to turn things around. But if the underlying variables (earnings and capital employed) improve, ORMESTER’s ROCE may increase, in which case your portfolio could benefit from holding the company. Because of this, it is important to look beyond the final value of ORMESTER’s ROCE and understand what is happening to the individual components. Three years ago, ORMESTER’s ROCE was -13.36%, which means the company’s capital returns have improved. Similarly, the movement in the earnings variable shows a jump from -FT53.46M to FT13.10M whilst capital employed fell because of a fall in total assets , which means the company has been able to improve ROCE by growing earnings and simultaneously putting less capital to work.
Despite ORMESTER’s current ROCE remains at an unattractive level, the company has triggered an upward trend over the recent past which could signal an opportunity for a solid return on investment in the long term. It is important to know that ROCE does not dictate returns alone, so you need to consider other fundamentals in the business such as the management team to determine whether there is potential for return by focusing our attention elsewhere. If you’re building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate ORMESTER or move on to other alternatives.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Ormester Vagyonvédelmi Nyrt’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.