Caltagirone (BIT:CALT) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So when we looked at Caltagirone (BIT:CALT) and its trend of ROCE, we really liked what we saw.

What Is 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. Analysts use this formula to calculate it for Caltagirone:

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

0.077 = €246m ÷ (€3.9b - €697m) (Based on the trailing twelve months to June 2023).

So, Caltagirone has an ROCE of 7.7%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 9.7%.

See our latest analysis for Caltagirone

Historical performance is a great place to start when researching a stock so above you can see the gauge for Caltagirone's ROCE against it's prior returns. If you'd like to look at how Caltagirone has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Caltagirone is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 77% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Caltagirone's ROCE

In summary, we're delighted to see that Caltagirone has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 69% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Caltagirone looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CALT is currently trading for a fair price.

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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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.