Here’s What’s Happening With Returns At Gefran (BIT:GE)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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 on that note, Gefran (BIT:GE) looks quite promising in regards to its trends of return on capital.

What is 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. Analysts use this formula to calculate it for Gefran:

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

0.07 = €8.1m ÷ (€165m - €49m) (Based on the trailing twelve months to September 2020).

Thus, Gefran has an ROCE of 7.0%. On its own, that's a low figure but it's around the 8.2% average generated by the Electronic industry.

Check out our latest analysis for Gefran

In the above chart we have measured Gefran'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.

The Trend Of ROCE

Gefran is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 2,903% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

In summary, we're delighted to see that Gefran has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 3 warning signs for Gefran you'll probably want to know about.

While Gefran isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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