Investors Will Want SC Foraj Sonde SA Craiova's (BVB:FOSB) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at SC Foraj Sonde SA Craiova (BVB:FOSB) and its trend of ROCE, we really liked what we saw.

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What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on SC Foraj Sonde SA Craiova is:

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

0.045 = RON4.4m ÷ (RON139m - RON40m) (Based on the trailing twelve months to December 2024).

So, SC Foraj Sonde SA Craiova has an ROCE of 4.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.5%.

Check out our latest analysis for SC Foraj Sonde SA Craiova

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 SC Foraj Sonde SA Craiova has performed in the past in other metrics, you can view this free graph of SC Foraj Sonde SA Craiova's past earnings, revenue and cash flow.

What Can We Tell From SC Foraj Sonde SA Craiova's ROCE Trend?

It's nice to see that ROCE is headed in the right direction, even if it is still relatively low. We found that the returns on capital employed over the last five years have risen by 40%. The company is now earning RON0.04 per dollar of capital employed. In regards to capital employed, SC Foraj Sonde SA Craiova appears to been achieving more with less, since the business is using 35% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 29% of its operations, which isn't ideal. 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.

In Conclusion...

In summary, it's great to see that SC Foraj Sonde SA Craiova has been able to turn things around and earn higher returns on lower amounts of capital. And given the stock has remained rather flat over the last year, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about SC Foraj Sonde SA Craiova, we've spotted 4 warning signs, and 3 of them don't sit too well with us.

While SC Foraj Sonde SA Craiova 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.