Returns On Capital Are Showing Encouraging Signs At Global Cosmed (WSE:GLC)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Global Cosmed's (WSE:GLC) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Global Cosmed, this is the formula:

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

0.023 = zł5.7m ÷ (zł375m - zł127m) (Based on the trailing twelve months to March 2023).

Therefore, Global Cosmed has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 9.8%.

Check out our latest analysis for Global Cosmed

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Global Cosmed, check out these free graphs here.

What Does the ROCE Trend For Global Cosmed Tell Us?

Shareholders will be relieved that Global Cosmed has broken into profitability. The company now earns 2.3% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

In Conclusion...

In summary, we're delighted to see that Global Cosmed has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 84% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Global Cosmed does have some risks, we noticed 2 warning signs (and 1 which can't be ignored) we think you should know about.

While Global Cosmed 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.