Returns At Gremi Media (WSE:GME) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So on that note, Gremi Media (WSE:GME) looks quite promising in regards to its trends of return on capital.

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

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. To calculate this metric for Gremi Media, this is the formula:

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

0.11 = zł11m ÷ (zł144m - zł40m) (Based on the trailing twelve months to June 2022).

So, Gremi Media has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Media industry average it falls behind.

View our latest analysis for Gremi Media

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'd like to look at how Gremi Media has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Gremi Media Tell Us?

Gremi Media is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 25% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Gremi Media is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 33% over the last three years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Gremi Media does have some risks, we noticed 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Gremi Media 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.