# What Should You Know About Internet Union SA’s (WSE:IUS) Return On Capital?

This article is intended for those of you who are at the beginning of your investing journey and want a simplistic look at the return on Internet Union SA (WSE:IUS) stock.

Internet Union stock represents an ownership share in the company. This share represents a portion of capital used by the company to operate the business, and it is important the company is able to use the capital base efficiently to create adequate cash flows for you as an investor. This is because the actual cash flow generated by the business dictates the potential for income (dividends) and capital appreciation (price increases), which are the two ways to achieve positive returns when buying a stock. Thus, to understand how your money can grow by investing in Internet Union, you need to look at what the company returns to owners for the use of their capital, which can be done in many ways but today we will use return on capital employed (ROCE).

### ROCE: Explanation and Calculation

When you choose to invest in a company, there is an opportunity cost because that money could’ve been invested elsewhere. Accordingly, before you invest you need to assess the capital returns that the company has produced with reference to a certain benchmark to ensure that you are confident in the business’ ability to grow your capital at a level that grants an investment over other companies. We’ll look at Internet Union’s returns by computing return on capital employed, which will tell us what the company can generate from the money spent in operations. IUS’s ROCE is calculated below:

ROCE Calculation for IUS

Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)

Capital Employed = (Total Assets – Current Liabilities)

∴ ROCE = zł242k ÷ (zł12m – zł2m) = 2.4%

The calculation above shows that IUS’s earnings were 2.4% of capital employed. This shows Internet Union provides an unsatisfying capital return that is well below the 15% ROCE that is typically considered to be a strong benchmark. Nevertheless, if IUS is clever with their reinvestments or dividend payments, investors can still grow their capital although to a poor extent.

### Then why have investors invested?

Internet Union’s relatively poor ROCE is tied to the movement in two factors that change over time: earnings and capital requirements. At the moment Internet Union is in an adverse position, but this can change if these factors improve. Therefore, investors need to understand the trend of the inputs in the formula above, so that they can see if there is an opportunity to invest. Three years ago, IUS’s ROCE was 18%, which means the company’s capital returns have worsened. The movement in the earnings variable over this time shows a fall from zł906k to zł242k whilst capital employed has increased due to an increase in total assets employed , which means the company’s ROCE has shrunk as a result of falling earnings and simultaneous increases in capital requirements.

### Next Steps

IUS’s investors have experienced a downward trend in ROCE and it is currently at a level that makes us question whether the company is capable of providing a suitable return on investment. Before making any decisions, ROCE does not tell the whole picture so you need to pay attention to other fundamentals like future prospects and management ability. Internet Union’s fundamentals can be explored with the links I’ve provided below if you are interested, otherwise you can start looking at other high-performing stocks.

1. Future Outlook: What are well-informed industry analysts predicting for IUS’s future growth? Take a look at our free research report of analyst consensus for IUS’s outlook.
2. Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Internet Union’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.