The Return Trends At ELSA Solutions (BIT:ELSA) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 ELSA Solutions' (BIT:ELSA) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on ELSA Solutions is:

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

0.12 = €1.7m ÷ (€24m - €10m) (Based on the trailing twelve months to December 2024).

So, ELSA Solutions has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 13% generated by the Electrical industry.

See our latest analysis for ELSA Solutions

Above you can see how the current ROCE for ELSA Solutions 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 ELSA Solutions .

How Are Returns Trending?

We like the trends that we're seeing from ELSA Solutions. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 86% more capital is being employed now too. So we're very much inspired by what we're seeing at ELSA Solutions thanks to its ability to profitably reinvest capital.

Another thing to note, ELSA Solutions has a high ratio of current liabilities to total assets of 43%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

All in all, it's terrific to see that ELSA Solutions is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 59% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about ELSA Solutions, we've spotted 4 warning signs, and 2 of them can't be ignored.

While ELSA Solutions may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.