Returns Are Gaining Momentum At Global Cosmed (WSE:GLC)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Speaking of which, we noticed some great changes in Global Cosmed's (WSE:GLC) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Global Cosmed is:

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

0.098 = zł25m ÷ (zł353m - zł102m) (Based on the trailing twelve months to September 2021).

Therefore, Global Cosmed has an ROCE of 9.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.8%.

Check out our latest analysis for Global Cosmed

Historical performance is a great place to start when researching a stock so above you can see the gauge for Global Cosmed's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Global Cosmed, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Global Cosmed has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 427%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Global Cosmed appears to been achieving more with less, since the business is using 23% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

Our Take On Global Cosmed's ROCE

In the end, Global Cosmed has proven it's capital allocation skills are good with those higher returns from less amount of capital. And since the stock has fallen 33% 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.

Like most companies, Global Cosmed does come with some risks, and we've found 2 warning signs that you should be aware of.

While Global Cosmed 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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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.