The Returns At Gismondi 1754 (BIT:GIS) Provide Us With Signs Of What's To Come

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Gismondi 1754 (BIT:GIS) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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 Gismondi 1754 is:

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

0.024 = €207k ÷ (€12m - €3.6m) (Based on the trailing twelve months to June 2020).

Therefore, Gismondi 1754 has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 7.4%.

See our latest analysis for Gismondi 1754

In the above chart we have measured Gismondi 1754's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Gismondi 1754's ROCE Trend?

In terms of Gismondi 1754's historical ROCE movements, the trend isn't fantastic. Around one year ago the returns on capital were 17%, but since then they've fallen to 2.4%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Gismondi 1754's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Gismondi 1754 is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 17% over the last year, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Like most companies, Gismondi 1754 does come with some risks, and we've found 3 warning signs that you should be aware of.

While Gismondi 1754 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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