Returns At Fugro (AMS:FUR) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Fugro (AMS:FUR) and its trend of ROCE, we really liked what we saw.

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 Fugro is:

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

0.042 = €52m ÷ (€1.8b - €595m) (Based on the trailing twelve months to December 2021).

So, Fugro has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Construction industry average of 7.1%.

See our latest analysis for Fugro

In the above chart we have measured Fugro'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 Does the ROCE Trend For Fugro Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The figures show that over the last five years, returns on capital have grown by 284%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Fugro appears to been achieving more with less, since the business is using 26% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Key Takeaway

In summary, it's great to see that Fugro has been able to turn things around and earn higher returns on lower amounts of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 49% return over the last year. 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.

One more thing to note, we've identified 1 warning sign with Fugro and understanding this should be part of your investment process.

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.