Will The ROCE Trend At Gremi Media (WSE:GME) Continue?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. 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?

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. Analysts use this formula to calculate it for Gremi Media:

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

0.20 = zł19m ÷ (zł129m - zł33m) (Based on the trailing twelve months to September 2020).

So, Gremi Media has an ROCE of 20%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 14% it's much better.

View our latest analysis for Gremi Media

Historical performance is a great place to start when researching a stock so above you can see the gauge for Gremi Media's ROCE against it's prior returns. 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 The Trend Of ROCE Can Tell Us

Gremi Media is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 20%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 29%. So we're very much inspired by what we're seeing at Gremi Media thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Gremi Media can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a solid 58% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 1 warning sign facing Gremi Media that you might find interesting.

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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