Returns On Capital At Seri Industrial (BIT:SERI) Paint A Concerning Picture

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Having said that, from a first glance at Seri Industrial (BIT:SERI) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Seri Industrial is:

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

0.0027 = €431k ÷ (€283m - €125m) (Based on the trailing twelve months to December 2020).

Therefore, Seri Industrial has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Electrical industry average of 10%.

Check out our latest analysis for Seri Industrial

Above you can see how the current ROCE for Seri Industrial compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Seri Industrial here for free.

So How Is Seri Industrial's ROCE Trending?

When we looked at the ROCE trend at Seri Industrial, we didn't gain much confidence. Around five years ago the returns on capital were 0.4%, but since then they've fallen to 0.3%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, Seri Industrial's current liabilities have increased over the last five years to 44% of total assets, effectively distorting the ROCE to some degree. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. And with current liabilities at these levels, suppliers or short-term creditors are effectively funding a large part of the business, which can introduce some risks.

Our Take On Seri Industrial's ROCE

To conclude, we've found that Seri Industrial is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 32% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Seri Industrial could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Seri Industrial 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. 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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