The Return Trends At Santierul Naval Orsova (BVB:SNO) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Santierul Naval Orsova's (BVB:SNO) returns on capital, so let's have a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Santierul Naval Orsova is:

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

0.062 = RON5.4m ÷ (RON117m - RON31m) (Based on the trailing twelve months to March 2024).

Therefore, Santierul Naval Orsova has an ROCE of 6.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.4%.

See our latest analysis for Santierul Naval Orsova

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

What The Trend Of ROCE Can Tell Us

Santierul Naval Orsova is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 38% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 26% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Key Takeaway

To sum it up, Santierul Naval Orsova is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Santierul Naval Orsova can keep these trends up, it could have a bright future ahead.

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

While Santierul Naval Orsova isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.