Returns Are Gaining Momentum At S.C.Prospectiuni (BVB:PRSN)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at S.C.Prospectiuni (BVB:PRSN) so let's look a bit deeper.

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. To calculate this metric for S.C.Prospectiuni, this is the formula:

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

0.18 = RON29m ÷ (RON182m - RON21m) (Based on the trailing twelve months to June 2024).

So, S.C.Prospectiuni has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 12% generated by the Energy Services industry.

See our latest analysis for S.C.Prospectiuni

Historical performance is a great place to start when researching a stock so above you can see the gauge for S.C.Prospectiuni's ROCE against it's prior returns. If you're interested in investigating S.C.Prospectiuni's past further, check out this free graph covering S.C.Prospectiuni's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

S.C.Prospectiuni has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 18% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 12%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

To sum it up, S.C.Prospectiuni is collecting higher returns from the same amount of capital, and that's impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 13% return over the last year. 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 to note, we've identified 1 warning sign with S.C.Prospectiuni and understanding this should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.