Spring Ventures (TLV:SPRG) Is Experiencing Growth In Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Spring Ventures' (TLV:SPRG) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Spring Ventures is:

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

0.17 = ₪14m ÷ (₪82m - ₪1.7m) (Based on the trailing twelve months to December 2020).

Thus, Spring Ventures has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Online Retail industry average of 11% it's much better.

Check out our latest analysis for Spring Ventures

Historical performance is a great place to start when researching a stock so above you can see the gauge for Spring Ventures' ROCE against it's prior returns. If you're interested in investigating Spring Ventures' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that Spring Ventures is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 17% on its capital. In addition to that, Spring Ventures is employing 399% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 2.1%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Spring Ventures has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Spring Ventures' ROCE

Long story short, we're delighted to see that Spring Ventures' reinvestment activities have paid off and the company is now profitable. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 34% to shareholders. So with that in mind, we think the stock deserves further research.

Spring Ventures does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is significant...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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