Returns Are Gaining Momentum At Comelf (BVB:CMF)

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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 Comelf's (BVB:CMF) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Comelf is:

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

0.10 = RON9.9m ÷ (RON167m - RON72m) (Based on the trailing twelve months to March 2024).

Therefore, Comelf has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.8% it's much better.

See our latest analysis for Comelf

Historical performance is a great place to start when researching a stock so above you can see the gauge for Comelf's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Comelf.

So How Is Comelf's ROCE Trending?

Comelf's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 292% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

On a side note, Comelf's current liabilities are still rather high at 43% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Comelf's ROCE

To sum it up, Comelf is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 284% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Comelf can keep these trends up, it could have a bright future ahead.

Comelf does have some risks, we noticed 3 warning signs (and 2 which are potentially serious) we think you should know about.

While Comelf 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.

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