What Do The Returns On Capital At FMS Enterprises Migun (TLV:FBRT) Tell Us?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after briefly looking over the numbers, we don't think FMS Enterprises Migun (TLV:FBRT) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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).

Thus, 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 7.3% it's much better.

View 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 want to delve into the historical earnings, revenue and cash flow of FMS Enterprises Migun, check out these free graphs here.

So How Is FMS Enterprises Migun's ROCE Trending?

On the surface, the trend of ROCE at FMS Enterprises Migun doesn't inspire 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. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

What We Can Learn From FMS Enterprises Migun's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for FMS Enterprises Migun have fallen, meanwhile the business is employing more capital than it was five years ago. In spite of that, the stock has delivered a 19% return to shareholders who held over 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.

While FMS Enterprises Migun 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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