The Return Trends At Iervolino & Lady Bacardi Entertainment (BIT:IE) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 when we looked at Iervolino & Lady Bacardi Entertainment (BIT:IE) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Iervolino & Lady Bacardi Entertainment:

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

0.10 = €12m ÷ (€190m - €74m) (Based on the trailing twelve months to December 2022).

Thus, Iervolino & Lady Bacardi Entertainment has an ROCE of 10%. That's a pretty standard return and it's in line with the industry average of 10%.

Check out 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'd like to see what analysts are forecasting going forward, you should check out our free report for Iervolino & Lady Bacardi Entertainment.

What Can We Tell From Iervolino & Lady Bacardi Entertainment's ROCE Trend?

Iervolino & Lady Bacardi Entertainment has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 10% on its capital. And unsurprisingly, like most companies trying to break into the black, Iervolino & Lady Bacardi Entertainment is utilizing 15,631% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 39%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

Overall, Iervolino & Lady Bacardi Entertainment gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Although the company may be facing some issues elsewhere since the stock has plunged 80% in the last three years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

One more thing to note, we've identified 4 warning signs with Iervolino & Lady Bacardi Entertainment and understanding these should be part of your investment process.

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.