The Trends At FMS Enterprises Migun (TLV:FBRT) That You Should Know About

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at FMS Enterprises Migun (TLV:FBRT), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on FMS Enterprises Migun is:

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

0.19 = US$20m ÷ (US$110m - US$4.9m) (Based on the trailing twelve months to September 2020).

Therefore, FMS Enterprises Migun has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Aerospace & Defense industry average of 6.9% it's much better.

See our latest analysis for FMS Enterprises Migun

Historical performance is a great place to start when researching a stock so above you can see the gauge for FMS Enterprises Migun's ROCE against it's prior returns. If you'd like to look at how FMS Enterprises Migun has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is FMS Enterprises Migun's ROCE Trending?

When we looked at the ROCE trend at FMS Enterprises Migun, we didn't gain much confidence. Around five years ago the returns on capital were 54%, but since then they've fallen to 19%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On FMS Enterprises Migun's ROCE

We're a bit apprehensive about FMS Enterprises Migun because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Investors must expect better things on the horizon though because the stock has risen 12% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

On a separate note, we've found 1 warning sign for FMS Enterprises Migun you'll probably want to know about.

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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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