Gaming Innovation Group (OB:GIG) Is Looking To Continue Growing Its Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Gaming Innovation Group's (OB:GIG) returns on capital, so let's have a look.

What Is 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 Gaming Innovation Group:

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

0.08 = €12m ÷ (€185m - €38m) (Based on the trailing twelve months to December 2022).

So, Gaming Innovation Group has an ROCE of 8.0%. In absolute terms, that's a low return, but it's much better than the Hospitality industry average of 6.2%.

View our latest analysis for Gaming Innovation Group

Above you can see how the current ROCE for Gaming Innovation Group 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 Gaming Innovation Group.

The Trend Of ROCE

Gaming Innovation Group's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 786% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Gaming Innovation Group's ROCE

In summary, we're delighted to see that Gaming Innovation Group has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 63% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Gaming Innovation Group does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is concerning...

While Gaming Innovation Group 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.