We Like These Underlying Return On Capital Trends At Multiconsult (OB:MULTI)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Multiconsult (OB:MULTI) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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 Multiconsult:

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

0.18 = kr390m ÷ (kr3.6b - kr1.5b) (Based on the trailing twelve months to December 2023).

Thus, Multiconsult has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Professional Services industry average of 13% it's much better.

See our latest analysis for Multiconsult

Above you can see how the current ROCE for Multiconsult compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Multiconsult here for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Multiconsult. The data shows that returns on capital have increased substantially over the last five years to 18%. The amount of capital employed has increased too, by 234%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, Multiconsult has decreased current liabilities to 41% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Multiconsult has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

What We Can Learn From Multiconsult's ROCE

All in all, it's terrific to see that Multiconsult is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 183% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

Multiconsult does have some risks though, and we've spotted 2 warning signs for Multiconsult that you might be interested in.

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.