Investors Will Want CI Games' (WSE:CIG) Growth In ROCE To Persist

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 CI Games (WSE:CIG) so let's look a bit deeper.

What is 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 CI Games is:

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

0.082 = zł8.6m ÷ (zł110m - zł5.6m) (Based on the trailing twelve months to December 2020).

Thus, CI Games has an ROCE of 8.2%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 22%.

Check out our latest analysis for CI Games

Historical performance is a great place to start when researching a stock so above you can see the gauge for CI Games' ROCE against it's prior returns. If you'd like to look at how CI Games has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From CI Games' ROCE Trend?

We're delighted to see that CI Games is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 8.2% on its capital. In addition to that, CI Games is employing 34% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

Overall, CI Games gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Given the stock has declined 47% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching CI Games, you might be interested to know about the 2 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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