Iervolino & Lady Bacardi Entertainment (BIT:IE) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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, Iervolino & Lady Bacardi Entertainment (BIT:IE) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Iervolino & Lady Bacardi Entertainment is:

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

0.16 = €13m ÷ (€130m - €44m) (Based on the trailing twelve months to December 2020).

So, Iervolino & Lady Bacardi Entertainment has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Entertainment industry average of 13% it's much better.

View our latest analysis for Iervolino & Lady Bacardi Entertainment

Above you can see how the current ROCE for Iervolino & Lady Bacardi Entertainment compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Iervolino & Lady Bacardi Entertainment Tell Us?

Iervolino & Lady Bacardi Entertainment has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses three years ago, but now it's earning 16% which is a sight for sore eyes. In addition to that, Iervolino & Lady Bacardi Entertainment is employing 10,810% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 34%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Iervolino & Lady Bacardi Entertainment's ROCE

To the delight of most shareholders, Iervolino & Lady Bacardi Entertainment has now broken into profitability. Since the stock has only returned 6.5% to shareholders over the last year, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Iervolino & Lady Bacardi Entertainment does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those don't sit too well with us...

While Iervolino & Lady Bacardi Entertainment 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.
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