Returns On Capital Signal Tricky Times Ahead For 4iG Nyrt (BUSE:4IG)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. 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 4iG Nyrt (BUSE:4IG) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for 4iG Nyrt:

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

0.021 = Ft26b ÷ (Ft1.6t - Ft316b) (Based on the trailing twelve months to September 2024).

Therefore, 4iG Nyrt has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the IT industry average of 13%.

See our latest analysis for 4iG Nyrt

Above you can see how the current ROCE for 4iG Nyrt compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for 4iG Nyrt .

What Does the ROCE Trend For 4iG Nyrt Tell Us?

In terms of 4iG Nyrt's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 55%, but since then they've fallen to 2.1%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a related note, 4iG Nyrt has decreased its current liabilities to 20% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From 4iG Nyrt's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for 4iG Nyrt. And the stock has done incredibly well with a 225% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

If you want to continue researching 4iG Nyrt, you might be interested to know about the 2 warning signs that our analysis has discovered.

While 4iG Nyrt 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.