Returns On Capital - An Important Metric For Comer Industries (BIT:COM)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Comer Industries (BIT:COM) looks quite promising in regards to its trends of return on capital.

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 Comer Industries is:

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

0.13 = €23m ÷ (€288m - €113m) (Based on the trailing twelve months to June 2020).

Therefore, Comer Industries has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.3% it's much better.

View our latest analysis for Comer Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Comer Industries, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Comer Industries are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 25%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Comer Industries' ROCE

All in all, it's terrific to see that Comer Industries is reaping the rewards from prior investments and is growing its capital base. And with a respectable 15% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 2 warning signs facing Comer Industries that you might find interesting.

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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